Financial Daily from THE HINDU group of publications
Tuesday, Mar 05, 2002
Mergers & Acquisitions
Electrosteel Castings gains control of two Lanco cos
HYDERABAD, March 4
IN a major development, Electrosteel Castings Ltd (ECL), the Kolkata-based pig iron major, has entered into an alliance with the Hyderabad-based Lanco group to acquire control over two of the Lanco group companies Lanco Kalahasthi Castings Ltd (LKCL) and Lanco Industries Ltd (LIL).
This would enable the Electrosteel-Lanco combine to emerge as the largest player in the cast iron and ductile iron spun pipes market with a captive pig iron plant.
The move appears to be aimed at resolving the severe competition prevailing between the two large players in the cast iron and ductile iron spun pipes market now and attaining peaceful coexistence.
According to this arrangement, Electrosteel would acquire 1.76-crore equity shares of Lanco Kalahasthi, a Rs 100-crore closely-held company, representing around 49 per cent holding, and also acquire controlling stake of 51 per cent in Lanco Industries, a Rs 98-crore listed company, through preferential offer route.
The boards of ECL and LIL have resolved to this effect at their respective meetings held at Kolkata on Monday. Following this, the LIL Managing Director, Mr L. Madhusudhan Rao, stepped down from the post, enabling Mr Gowri Shankar Tekriwal of Electrosteel to take over as the new Managing Director of LIL.
The LIL board has also approved a resolution to induct two nominees of Electrosteel.
A Lanco senior official told Business Line that LIL would offer equity shares to Electrosteel to enable the latter to acquire 51 per cent holding on the expanded paid-up equity base through preferential offer route.
The current equity of the company stood at Rs 29.91 crore, while the reserves and surplus amounted to Rs 3.85 crore. The Electrosteel management is expected to pump in fresh funds of around Rs 22 crore into LIL.
Apart from a 2-lakh tonne capacity pig iron plant, LIL also has a mini cement plant with a capacity of 90,000 tonnes.
According to the Lanco official, while 50 per cent of the LIL pig iron capacity would be utilised by LKCL, the balance would be picked up by Electrosteel's unit at Chennai.
LIL would convene the general meeting of its shareholders shortly to obtain their consent for these resolutions. According to the Lanco official, while LIL was likely to offer its shares at par to Electrosteel, the shares of LKCL may be offered at a marginal premium.
LKCL, the cast iron and ductile iron spun pipes manufacturer that has emerged as one of the largest foundries in the country with one lakh tonnes of annual capacity, embarked upon an expansion programme last year involving enhancement of production capacity of ductile iron spun pipes and also the product range.
The capital outlay for the expansion programme was placed at Rs 15 crore.
The current equity of Rs 36 crore of LKCL is held by NRIs to the tune of 25 per cent and the balance 75 per cent by the Indian promoters and Lanco group companies. LKCL availed of term loans to the tune of Rs 54 crore from financial institutions such as IDBI, LIC, GIC and SBI.
In fact, according to Lanco officials, LKCL was seriously considering a proposal to go in for a reverse merger with LIL, the Lanco group's flagship company.
LKCL embarked upon the first phase of expansion programme to take the capacity of ductile iron spun pipes to 90,000 tonnes from 60,000 tonnes. This phase was expected to be completed last year and the second phase to take the capacity to 1.2 lakh tonnes would be ready by the month-end.
According to LKCL official, the company's spun pipes facility combined with CAD, in-house pattern shop and Lanco's core strengths in metallurgy made it a serious market contender in the integrated ductile iron piping solutions in a global context.
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