Toronto-based Canada Pension Plan Investment Board (CPPIB) is set to become the controlling shareholder in L&T Infrastructure Development Projects Ltd (L&T IDPL) when India’s biggest engineering and construction firm converts the Compulsorily Convertible Preference Shares (CCPS) allotted to the pension fund giant in 2014 and 2015 by the end of the month, at least two persons said.
CPPIB invested ₹1,000 crore in L&T IDPL in December 2014 followed by a further ₹1,000 crore in December 2015, against which it was allotted the CCPS.
“CPPIB will become the majority shareholder of L&T IDPL with a stake of 51 per cent or more upon conversion of CCPS by September 30,” a person briefed on the plan said, asking not to be named.
L&T, according to this person, is willing to dilute its holding in IDPL to less than 25 per cent also.
“There are a couple of other private equity investors/funds which are willing to check-in post-L&T dilution. IDPL needs money to bid for new projects. Upon conversion of CCPS, CPPIB will hold at least 51per cent and the new shareholders who will come in will take 24per cent or 25per cent and L&T will retain 24 or 25 per cent,” he said.
As part of the plan, L&T will also buy out the less than 2 per cent stake held by hedge fund Old Lane in IDPL to help offer a larger slice to new private equity investors/funds, the person said.
L&T currently holds 97.45 per cent stake in IDPL.
IDPL has been asked to look for office space outside, in a clear indication that the subsidiary is going to leave its fold, a second person briefed on the plan said. Currently, IDPL is functioning out of L&T’s campus in Chennai.
“Once it becomes a non-L&T company, when it is not controlled by L&T, it will have to move out; it cannot be in the campus. It’s only a matter of time,” the second person said.
L&T could not be reached immediately for comment.
Out of the ₹2,000 crore CPPIB invested in IDPL, it took out ₹1,120 crore in June 2018 to invest in L&T IDPL sponsored IndInfravit Trust (IndInfravit) in return for holding 30 per cent of the InvIT’s units.
IDPL transferred five operational toll roads to the IndInfravit Trust. “After the transfer, it doesn’t have projects now which is worth a big valuation. For the past three years, IDPL is not bidding for new projects. So, whatever is not saleable to IndInfravit Trust, those are the projects lying in its portfolio. Effectively, the valuation of that will be very small, giving CPPIB a majority stake for its Rs 880 crore investment during the conversion of CCPS” the first person explained.
Besides, as and when IDPL develop projects, it is supposed to transfer them to IndInfravit Trust once the execution is over.
“It has to do it; there is no choice because the Trust will lose projects after some time. When the concession period of highway projects ends, they will revert to NHAI/Government. So, those BOT highway projects will fall off from the IndInfravit Trust portfolio. That is why the Trust is buying projects from other developers such as Sadbhav Infrastructure Project Ltd which runs nine road projects,” the first person said.
Logically, it doesn’t make sense for L&T to continue as a majority shareholder in IDPL given its reluctance to invest more money into the unit, he said. “Besides, it doesn’t want to consolidate debt”.
At the holding company level, IDPL had a debt of about ₹357 crore on December 31, 2018. This excludes the debt held by its many subsidiaries.