The Hindu Business Line : L&T gets FIs' support in defence against raiders

THE financial institutions (FIs) which hold around 38 per cent in L&T have agreed to "act in concert" with the L&T establishment in the event of an outside siege for ownership of the company.

"Exchanges of letters of understanding between the institutions and us to this effect have been made," said Mr J.P. Nayak, President (Operations) and member of the Board.

The L&T Employees' Welfare Foundation, which will own around 15 per cent of the company's equity stake, will have a couple of trustee-members from the institutions.

L&T is throwing several rings of defence around itself against potential raiders in an exercise that it calls `ringfencing'.

The first line of defence is the Welfare Foundation, whose 15 per cent stake - which sizeable and available block of holding left L&T vulnerable to raiders - has been neutered and put out of the reckoning.

"The Foundation's shares cannot be sold in the market, and it has no representation on the board of the company. As such, this holding has been taken out and locked away," said Mr Nayak.

Company officials fear that the potential danger in a chunk of shares being available for sale could see a repeat of the Cemco episode.

"Tomorrow it could be, theoretically speaking, a multinational company with interests in our electrical sector. To prevent them from taking over L&T, perhaps we might be persuaded to give up our electricals business?" asked a senior L&T official.

"We must not make it easy entry for any raider," said Mr Nayak.

The Foundation, the acting-in-concert arrangement with the FIs, and the long-term plan to increase enormously the company's market capitalisation would be sufficient safeguards against this, he added.

"We feel that the FIs are with the Government, which will always have the well-being of the company in mind," said another L&T official.

The only way to breach the ringfence now, he added, is if the Government itself wishes so, which is "highly unlikely."

Corporate analysts said that the two ESOP schemes for L&T employees could further fragment and scatter the shareholding of the company across a larger number of shareholders eventually, making the company even more difficult to raid.

Under the ESOP schemes, five per cent of the paid-up capital was issued in 1999, and another five per cent last year when shareholders approved the plan in August 2003.

Mr Nayak said that the ESOP schemes have no bearing on the `ringfencing' of the company and have been issued to incentivise employees.

"And it only leads to a small amount of dilution with respect to shares."

Moreover, he said, ESOPs are first granted, then vested, and then exercised; the entire process could take over four years.

Even then there is no guarantee that employees will actually exercise their options.

More Stories on : Announcements | Foreign Institutional Investors | Cement

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page