Sterlite Technologies Ltd (Sterlite) is set to spin-off its power business into a separate unlisted company, while retaining its telecom business in the listed entity.

The de-merger will be effective April 1, 2015 subject to all necessary approvals.

Corporate restructuring

In a meeting today, the Sterlite board approved the corporate restructuring plan. Following the restructuring, Sterlite Technologies will become a pure-play telecom products and solutions company providing broadband solutions for fully converged networks.

Power products business and power transmission grid business are to be demerged into ‘Sterlite Power Transmission Ltd’, a separate entity.

“This proposed restructuring is an important step in the direction of our vision to create two unique pure-play business entities, one focused on broadband solutions for converged networks and other focused on providing solutions and creating power transmission infrastructure,” Anil Agarwal, Chairman, Sterlite Technologies, said.

Share allotment

The equity shares of the telecom business will continue to be publicly listed, while those of the newly formed power business will remain unlisted. Investors will have the choice to continue to be associated with one or both these two businesses.

Once the demerger scheme is effective (after due regulatory approvals), investors will retain their equity share (FV Rs 2) in the telecom company.

Additionally, for every five equity share held in Sterlite Technologies, shareholders will have an option to receive one equity share of Rs 2 each of Sterlite Power Transmission issued at a premium of Rs 110.30 or one redeemable preference share (RPS) of Rs. 2 each issued at a premium of Rs 110.30 each.

The shareholders will have the option of continuing to be invested in SPTL or redeeming the RPS through liquidity options. The RPS will be redeemable within 30 days of issue if opted for.

The value of SPTL has been decided by the board based on the recommendation of Price Waterhouse & Co LLP and Haribhakti & Co LLP.

The value of the demerged undertaking after taking into consideration the allocation of debt would be Rs 885 crore, implying a value of Rs 22.46 per equity share of Sterlite Technologies. Post this, as of 31st March 2015, on a pro-forma basis STL will retain a consolidated net debt of Rs 674 crore against a pre-restructuring consolidated net debt of Rs 4881 crore.

The share entitlement ratio report has been prepared by Price Waterhouse & Co LLP with a fairness opinion done by Axis Capital who are acting as financial advisers to STL. The company has also appointed BSR and Co as tax advisors and Khaitan & Co as legal advisors to the proposed transaction.

The appointed date for the demerger is April 1, 2015, and the demerger is expected to be completed by Q4, FY16. The proposed corporate restructuring is subject to approval by the High Court, SEBI, shareholders of STL, its creditors and other relevant regulatory authorities.

During intra-day trade on the BSE, Sterlite shares hit a high of Rs 69.30 and in the mid afternoon were trading at Rs 66.60 per share, a rise of 5.2 per cent.