Proxy advisory Stakeholders Empowerment Services has called into question three resolutions that the management of cement-maker Dalmia Bharat wants its shareholders to pass on Thursday.

The resolutions, if passed, give an indirect exit to PE player KKR’s investment in Dalmia Bharat’s subsidiary Dalmia (Cement) Bharat (DCBL) in exchange for cash and equity from the parent company.

In 2010, KKR Mauritius Cements Investments bought 15 per cent stake in the subsidiary company DCBL for ₹500 crore. While a PE firm usually exits its investment through a stake-sale to another investor or by publicly listing the company, here, Dalmia Bharat has proposed to buyout KKR and makes DCBL a 100 per cent subsidiary. Instead, KKR will gain 8.45 per cent of parent company Dalmia Bharat (75 lakh equity shares issued at ₹825 a share, valued at ₹618.75 crore) and cash consideration of ₹600 crore.

Arm’s valuation higher?

Strangely, the SES report notes, the share and cash swap has finally valued the subsidiary company DCBL at ₹8,125 crore while the parent company Dalmia Bharat’s valuation, which has interests also in sugar and steel, at ₹7,322 crore. SES also says that Dalmia Bharat has failed to make public valuation reports and fairness opinions on DCBL shares.

Additionally, the report adds, “When KKR invested funds in DCBL, (the latter) had a debt-to-equity ratio of approximately 0.5 and had a lot of capacity to borrow… And now the company is using its parent’s cash to give an exit to KKR when the debt-to-equity ratio has gone up.”

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