Tube Investments of India (TII), part of Chennai-based diversified business conglomerate Murugappa Group, will pick up a controlling stake in the asset-stressed CG Power and Industrial Solutions for a consideration of Rs 700 crore. CG Power, engaged in the industrial and power sectors, is under financial stress and its lenders have initiated the resolution process of stressed assets in terms of prudential framework.
As a first step towards the commencement of the bidding process, TII and CG Power entered into a securities subscription agreement on Friday for an investment of around Rs 700 crore in the latter to acquire a 51% stake through a combination of investment of around Rs 550 crore for primary subscription to the equity shares and around Rs 150 crore for primary subscription to warrants.
The warrants will be convertible into equivalent number of equity shares at the option of TII within 18 months from the allotment. The securities will be issued to TII on a preferential basis. Of the total investment for the warrants, close to 25% will be paid upfront at the time of subscription of the warrants, TII said in a regulatory filing to the stock exchanges.
The investment, issue and allotment of equity shares and share warrants are subject to TII being declared as a successful bidder in accordance with the Swiss Challenge Process under stressed asset directions and approval from the Competition Commission of India, it said.
TII’s operational, financial and governance capabilities and experience will help remove the present hardships of CG Power and facilitate value creation for both the companies. Since both are in the engineering business, the acquisition is expected to create synergy between the two, TII said. The acquisition would be completed before 120 days from the date of the securities subscription agreement.
TII will acquire approximately 50.62% of the issued and subscribed share capital of CG Power. After the conversion of the warrants into equity shares, the shareholding of TII will be close to 56.61% of the issued and subscribed share capital of CG Power.
Mumbai-based CG Power, a public limited company, was incorporated in 1937. It has 13 manufacturing facilities and employs over 3,000 people directly and 8,000 people indirectly. The company had a total income of Rs 3,169.48 crore in FY20. It hit the headlines when a board-instituted investigation revealed a slew of governance and financial lapses, including siphoning off money last year. The scam-hit company then sacked its founder Gautam Thapar as chairman and set up a new board to fix the issues. The business of CG Power had been affected due to a severe crunch in working capital coupled with the debt burden to a slew of lenders.
