Financial scenario of Maytas is not too encouraging.

BL Research Bureau

The Company Law Board (CLB)’s directive to induct IL&FS Financial Services as promoter of Maytas Infra with effect from September 1 may bring the much-needed direction and leadership to the beleaguered infrastructure company, blemished by the Satyam Computer scandal.

IL&FS, with its experience in the infrastructure project and financing space, may help resolve credibility issues associated with Maytas. However, this unanimous decision of the Maytas board and the CLB, after the latter had rejected a board representation for IL&FS in February, appears a little surprising. Besides, IL&FS’s presence as equity partners in other infrastructure projects also poses the risk of conflict of interests.

According to the Union Minister of Corporate Affairs, IL&FS, the largest shareholder, will control 37 per cent in Maytas after the proposed takeover. IL&FS holds 14.5 per cent stake in Maytas, mostly acquired by invoking pledged shares and off-market transactions. As a holding of over 20 per cent would trigger an open offer, IL&FS is expected to come up with such an offer on September 1. IL&FS will have a lock-in period of two years for a stake up to 26 per cent in Maytas.

Interestingly, in February the CLB rejected the Government’s petition to supersede the board of Maytas and did not also allow IL&FS on the board. That the proposed takeover does not entail any bidding process only suggests that there may be urgency in saving Maytas from its dwindling order book and a severe fund crunch.

Maytas has lost a series of orders, including the Rs 12,000-crore Hyderabad Metro project, after alleged irregularities in funds movement between Satyam and the company. The Union Minister has now stated that there is no evidence of money flowing from Satyam to Maytas. This statement, together with the proposed takeover, may build some confidence at a time when the company’s order book has dwindled to Rs 7,500 crore.

However, the financial scenario of Maytas is not too encouraging. While the company has been sanctioned a corporate debt restructuring scheme by lenders, its fund-based and non-fund based liabilities at Rs 1,700 crore and Rs 1,100 crore respectively remain a concern, with the company slipping in to operating losses in the June quarter. Net losses of Rs 490 crore for the year ended March 2009, are suggestive of the uphill task at hand for the new promoter.

The company is also troubled by liquidated damages imposed by clients as well as refusal of clients to certify work already done (failing which revenue cannot be booked). IL&FS’ strategy for a turnaround and the open offer price may be key decision-enablers for retail investors at this point.

(This article was published in the Business Line print edition dated September 1, 2009)
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