Mumbai, July 25: Investors pummelled the stocks of Ambuja Cements and ACC the day after Swiss giant Holcim unveiled plans to restructure its Indian operations through a complicated cash and share swap arrangement that many felt were loaded against minority shareholders.

Ambuja Cements was battered in the morning and plunged at one stage by almost 15 per cent. But it clawed back some of the losses to close at Rs 171 — a loss of Rs 20, or 10.5 per cent, from Wednesday’s close of Rs 191.

The ACC share finished with a loss of 3 per cent, or Rs 36.90, at Rs 1,194.10.

Under the plan, Ambuja will first acquire a 24 per cent stake in Holcim India (a parent company) for Rs 3,500 crore.

Holcim India will then be merged into Ambuja through an all-stock merger.

Ambuja will also issue fresh shares to Swiss parent Holcim that will result in the latter’s shareholding rising to 61.39 per cent. On account of the merger of Holcim India and Ambuja, the latter will own 50.01 per cent in ACC. There is also a provision that Ambuja may at a later date invest up to Rs 3,000 crore to acquire an economic ownership in ACC of up to 10 per cent.

Experts feel that the move is not positive for the minority shareholders of Ambuja. In the first place, the payment of Rs 3,500 crore from its books will see its cash balances reducing to over Rs 300 crore. Moreover, the possibility of the company having to pay another Rs 3,000 crore to acquire more stake in ACC could lead to it taking recourse to debt.

Several brokerages were, therefore, critical in their reaction to the deal, particularly from the viewpoint of Ambuja. The result was a spate of downgrades.

Foreign brokerage CLSA said the restructuring was “value destructive” for the minority shareholders of Ambuja.

Other investment houses were also critical of the deal. “The loss for minority shareholders of Ambuja may vary between Rs 400 crore and Rs 500 crore from this transaction… The fact is the entire cash of Ambuja passing to Holcim in effect lowers expectations of a higher dividend or free cash flow (FCF) based valuation for the company,” said Deutsche Bank.

JP Morgan said it viewed the deal negatively because Holcim was sucking cash out of Ambuja Cements. According to the brokerage, while most of the cash now in the books of Ambuja would be taken out, it will also find it difficult to access ACC’s cash trove of Rs 2,900 crore for future growth opportunities and that it will have to rely only on dividends as the only option from the investment in ACC.

After the transaction, Ambuja Cement will be reduced to a quasi-holding company (such as Grasim before the Ultratech Cement-Grasim deal). In India, such holding companies usually trade at a discount.

JP Morgan also expected a full merger of the two companies in the future. This was evident from the fact that Ambuja Cement planned to buy another 10 per cent in ACC in two years for which it is keeping aside Rs 3,000 crore.

The attention is, therefore, focussed on the institutional shareholders of Ambuja such as the Life Insurance Corporation which holds nearly 6 per cent.

Total institutional holding in Ambuja stands at nearly 39 per cent and this includes foreign institutional investors (FIIs) such as Aberdeen Global Indian Equity Fund among others.

Capital market circles do not rule out the possibility of institutions like LIC echoing their stand against the move. Ambuja will take shareholders approval through an extraordinary general meeting in the fourth quarter of this calendar year and the restructuring process is expected to be completed by the third quarter of 2014.