The Telegraph
Since 1st March, 1999
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L&T gropes for demerger solution

Mumbai, June 14: Rating agency Icra may present an amended report on the restructuring of the cement business of Larsen and Toubro.

Icra’s analytical report was discussed at today’s board meeting but the discussions remained inconclusive. Based on certain queries, the rating agency may come up with amendments, L&T managing director A. M. Naik told reporters after the meeting here.

The queries on Icra’s work relate to business implications. Any decision, including the vertical demerger of cement business, would have a major impact on the company’s net worth and balance sheet, Naik said.

“No time frame has been fixed to arrive at decisions as it is a complex matter,” he said. While the separation of the company’s cement business would be a major step in L&T's history, the company should ensure that its core competence in engineering business remains, he added.

Icra submitted a formal report relating to the analysis of two proposals, including one by the Birlas’ for vertical demerger, two days ago and circulated among the board members, L&T board member and cement business head J. P. Nayak said.

He pointed out that there were two proposals before the board and the issue is to adopt one of them.

“If we adopt one proposal, it will bring a change in the character of the company,” he added. Nayak further specified that Icra has not made any recommendation, but has only made it clearer for the board to take a decision.

“Ours is a very large company and any decision taken should be in the interest of its shareholders,” he said while replying to a query on why the cement segregation issue was taking so long.

“We will have another meeting to discuss the issue of restructuring,” Nayak said. However, no date has been fixed for the meeting.

None of Icra's officials were present at today's meeting, he said.

Grasim Industries chairman Kumar Mangalam Birla, who turned 35 today, said it would be premature to comment on the restructuring now.

Grasim holds about 15 per cent stake in L&T and has just concluded its offer to acquire an additional 20 per cent stake at Rs 190 per share. Asked about the Birla group's holding in L&T on conclusion of the offer, Birla said, “We will make the details public soon.”

On May 23, Icra had made a presentation on the restructuring of L&T's cement business to the company’s board but discussions had “remained inconclusive” as directors had sought some clarifications.

Icra was mandated by L&T in February to evaluate various proposals to demerge the cement business.

Grasim had put forth a proposal calling for a vertical split of the business, whereas the L&T management has called for a structured split. The L&T management believes that following its route of segregating the cement business would allow them to retain its net worth, thus enabling them to bag large projects.

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