Murugappa Group's Tube Investments buys controlling stake in CG Power

Tube Investments will acquire control over the company and will have the right to appoint a majority of the directors on the company board
A year after promoter Gautam Thapar was forced to quit CG Power and Industrial Solutions board as chairman, the company has a new owner. Murugappa Group’s Tube Investments of India taking control of the company, in a Rs 700-crore deal agreed to on Friday.

CG Power and Tube Investments, in separate statements to the BSE, said the two companies had entered into an agreement for allotment of equity shares and issuance of warrants, aggregating to a value of Rs 700 crore. Post allotment of securities, Tube Investments will have the right to appoint a majority of the directors on the company board. 

Tube Investments will take control in a two-part deal. The first entails allotment of 64.25 billion equity shares of CG Power to Tube Investments at the face value of Rs 2 each share and at a price of Rs 8.56 apiece, aggregating to Rs 550 crore in value. Tube Investments will hold around 50.62 per cent of the company post the equity shares allotment. 

The deal also includes another 17.52 billion warrants to be allotted to Tube Investments, each carrying a right to subscribe to one equity Share per Warrant within 18 months from allotment. The aggregate consideration for subscribing to equity shares upon exercise of the warrants is Rs 150 crore, of which Rs 37.5 crore, will be paid on warrant subscription by the investor. Post conversion of the warrants, Tube Investments shareholding in CG Power will further rise to 56.61 per cent of the issued and subscribed share capital of the target company.

The deal is subject to lenders accepting one-time settlement and restructuring of funded facilities and guaranteed debt. The company will also seek shareholder approval for the deal at an extraordinary general meeting (EGM) to be held on September 2. Tube Investments in its statement to the BSE said, the acquisition would be completed before 120 days from the date of the Securities Subscription Agreement. 

While analysts see the deal as a positive one, they said it was difficult to assess the valuation as most details on CG Power’s financials post the fraud are yet to be disclosed. 

In August 2019, the firm informed the exchanges of a risk and audit committee (RAC) report, which detailed multiple dubious transactions at the company. The report indicated it to be an employee-led fraud. These included understated liabilities and advances at both the company and the group level. The report also said the net worth of the company had been understated owing to unauthorised write-offs. The findings later led to a Sebi ban on promoter Thapar from accessing the capital market.

KKR India Financial Services, Bharti (SBM) Holdings, YES Bank, and L&T Finance are some of the shareholders of CG Power. YES Bank became a shareholder of CG Power in May 2019, when it invoked the pledge on Thapar’s shares in CG Power, which also resulted in the promoter’s exit as a shareholder from the company. At its prime in March 2014, Thapar’s stake in CG Power was over 40 per cent.  

Trouble started brewing at CG Power much earlier, which prompted the new investors like KKR to appoint a new committee in March 2019 to oversee the company’s operations. Soon after, the operations committee set off to dig further into the firm’s books post receiving an interest payment failure letter and a bank’s request made to replace a cheque, which was to expire.

Proxy advisory firm Ingovern has also questioned KKR’s role, in what the proxy advisory firm called a battle for Boardroom and Corporate Control. 

A person close to the development said as of now the existing set of investors, including KKR, would continue to hold stake in the company. 

The Ingovern report also said. “As per Thapar, the events at CG Power have been orchestrated by the lenders as KKR India to oust the promoters and take control of the company.”

A person close to the development said as of now the existing set of investors, including KKR, would continue to hold stake in the company. “There is no change as part of the deal. However, exit or now would be their decision.” The person said the funds raised from Tube Investments would be used for working capital requirements and business expansion.

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