The Hindu Business Line : Federal Mogul bankruptcy ending will find echo in India

Outcome
Federal Mogul has majority stake in Federal-Mogul Goetze India and minority stake in India Pistons.
Amalgamations group, which owns India Pistons, may end up buying out Federal Mogul.

Chennai June 25 After six long years the US auto components major Federal Mogul may now be on its way out of bankruptcy.

When that happens, its echo will be felt in India, where it is present in two companies. It has a majority stake of 50.1 per cent in Federal-Mogul Goetze India Ltd and minority stake of 30 per cent in the closely-held India Pistons Ltd.

Federal Mogul filed for Chapter 11 bankruptcy protection in October 2001, after it got slapped with over 3,30,000 lawsuits from people who claimed to be affected because of exposure to asbestos, a cancer-causing raw material Federal Mogul used in the making of some of its products.

Now, most of the cases have been settled, some in the form of Federal Mogul shares. In what has been described by the Western media as "the last major hearing in the bankruptcy case", a Delaware court is expected to approve Federal Mogul's reorganisation plan that will take the company out of bankruptcy. The final arguments are scheduled for October and, by all accounts, Federal Mogul should be out of bankruptcy by the end of the year.

Fallout

As a fallout of this, the Chennai-based Amalgamations group, which owns India Pistons, will end up buying out Federal Mogul.

Federal Mogul, which has closed nine of its plants in the US, has said that it has shifted manufacturing to low-cost countries. In India, the US major cannot be a part of two competing companies and will have to exit one of them. Which one will it be — Federal-Mogul Goetze or India Pistons?

While India Pistons is not willing to comment on this question, industry sources point out that Federal Mogul would have to exit the Chennai-based joint venture, where it does not have a controlling stake.

India Pistons has previously said that it is not willing to sell out, therefore, the option of buying out the Amalgamations group is not open to Federal Mogul.

Besides, the Rs 300-crore India Pistons has been laying the groundwork for a situation when it would not have the US major as a partner. For instance, it has entered into a technology-transfer tie-up with a large, European pistons manufacturer for know-how in pistons needed for Euro-IV compliant engines.

Federal Mogul became a partner in Goetze (India) Ltd (as it was known previously) through an acquisition that happened in the US.

Sources who follow the Chennai automotive industry closely have told Business Line that India Pistons still retains the option of complaining against Federal Mogul to the FIPB, for violation of Press Note 1, which stipulates that a foreign collaborator in an Indian joint venture will need the Indian partner's permission before getting into a competing business in India.

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