The Telegraph
Since 1st March, 1999
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Little shift in new CDC bid for L&T Cement

Mumbai, Jan. 30: The veil on CDC Capital Partners’ fresh proposal to L&T, described as ‘softer’ by L&T managing director and CEO A M Naik, has been lifted. It has come to light that the venture capital firm has only altered the instrument for investing from debt to equity, but its other drag-along conditions remain.

The L&T board will meet after a fortnight to discuss the alternative proposal submitted by Grasim Industries. However, reliable sources say that the A V Birla group continues to hold an edge vis-a-vis the financial institutions as CDC has not altered its drag-along clauses for picking up stake in the demerged entity.

Yesterday, Naik told newspersons after a marathon board meeting that the company has secured a fresh and better proposal from CDC that was “softer”.

However, in reality the firm has only brought about a change in the instrument to invest in L&T's cement division from debt to equity. Sources said that CDC has now agreed to subscribe to fully convertible debentures (which will be converted into equity at a later stage) to be issued by L&T as against the earlier proposal of subscribing to a non-convertible debenture issue.

According to the earlier proposal, CDC had only the option of converting its investment into equity, else its investment could be redeemed in three installments.

L&T circles see this softening as a reply to criticisms that with a minority stake of 6.8 per cent, CDC with a “debt instrument”, would get complete control of the cement entity.

However, detractors point out that the fresh proposal by CDC is only a “minor change” as most of its other conditions have been left unchanged. L&T officials were not available for comments.

CDC had imposed 30 conditions upon L&T for its investment, as part of which it demanded veto rights over a number of crucial decisions.

The firm had said that L&T would take any decision in the affairs of the cement entity without its consent. Further, its consent would be mandatory for constitution of the board, appointment of directors including nominees.

CDC also demanded that if was to divest its holding, L&T should also divest up to 44.2 per cent of its holding in the cement division, so that management control can be transferred to the new buyer with 51 per cent. However, if L&T decided to sell its holding, CDC’s holding would tag along with the transaction.

Moreover, L&T Cement cannot issue any bonus, right or any form of equity, nor make any declaration of dividend without CDC’s approval.

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