Murugappa Group Set To Win Swiss Challenge For CG Power
An Indian 2,000 rupee, bottom, and 500 rupee banknotes are arranged for a photograph. (Photographer: Brent Lewin/Bloomberg)

Murugappa Group Set To Win Swiss Challenge For CG Power

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Exactly a year after founder Gautam Thapar was sacked as its chairman, CG Power and Industrial Solutions Ltd. is set to get a new promoter in Murugappa Group after its offer to invest Rs 700 crore in the fraud-hit firm found no challenger.

Chennai-based Murugappa Group firm Tube Investments of India Ltd. had earlier this month offered to invest Rs 700 crore in CG Power and Industrial Solutions Ltd. for a 56.6% stake.

Lenders to CG Power, which had defaulted on loan repayments since the fraud was detected in the firm last year, launched a so-called Swiss challenge to explore if any other eligible investor was willing to better the Murugappa's offer.

No counteroffer was received at the close of the bidding on Aug. 26, two sources with direct knowledge of the development said.

Lenders are not evaluating the Murugappa offer and are likely to approve it later in the day, they said.

While CG Power is an established player in industrial motors and power components, Tube Investments is the engineering arm of the Rs 36,900-crore Murugappa Group.

A year back, the board of CG Power, erstwhile known as Crompton Greaves, had sacked founder Gautam Thapar as the company chairman as a direct fallout of unearthing of a multi-crore financial fraud.

In August last year, a board-instituted investigation found major governance and financial lapses, including some assets being provided as collateral and money from loans siphoned off by "identified company personnel, both current and past, including certain non-executive directors".

Thapar had denied any wrongdoing saying "all inter-corporate transactions" were "fully authorised by the board".

He was left with only 8,574 shares out of 62.6 crore shares of the company at the time of the sacking after lenders involved pledges he had created on his erstwhile shareholding to borrow money.

As part of its investment proposal, Tube Investments of India Ltd will pay Rs 550 crore for 64.2 crore equity shares of the company of the face value of Rs 2 each at a price of Rs 8.56 apiece, according to regulatory filings by CG Power.

Further, it will invest Rs 150 crore more by subscribing to 17.5 crore warrants, convertible into equity shares.

This investment was subject to Tube Investments being declared winner of the Swiss challenge as well as "lenders agreeing to restructure the debts of the company", the filings showed.

Tube Investments has received approval from the Competition Commission of India for its investment into the company, it added.

Also read: NCLT Allows Plea To Reopen CG Power’s Accounts

The investments by the Murugappa group are to be used for "current/future running and expansion of the business, working capital, general corporate purposes, repayment of loans and for payment of interest for loans availed by the company", CG Power said.

Tube Investments will hold 81.77 crore or 56.61% of CG Power after the fund infusion.

"Since both the companies are in the engineering business, the acquisition is expected to provide synergy for both the companies," Tube Investments had said in a regulatory filing on Aug. 7.

In August last year, CG Power had stated that the company's current and past employees, including unnamed non-executive directors and certain Key Managerial Personnel provided certain assets of the company as collateral and made the firm a co-borrower or guarantor to obtain loans without due authorisation.

The funds so raised were routed out of the company. This, the company had said, had been going on for two years.

Transactions totalling about Rs 3,000 crore appeared to have been carried out by various means, including inappropriate netting off using ostensibly unrelated third parties, routing transactions through subsidiaries, promoter affiliated companies, and other connected parties, it had said.

Also read: Yes Bank Exits CG Power, Sells More Than 10% Stake In Tranches

The Serious Fraud Investigation Office as well as SEBI are probing former management of CG Power for lapses and fraud.

Sources said Murugappa Group will be issued fresh equity shares and the money that it brings in would be used to meet operating and working capital expenditure.

CG Power shareholders are to approve the issue of preference share at a meeting next week.

Sources said the business performance of CG Power has been affected due to a severe crunch in working capital and bringing in an investor like Murugappa Group would help tide over that.

Capital restructuring of the business and the company is critical as the working capital gap is wide and while the businesses are intrinsically strong, this starvation has led to lower revenue, they said adding the company has a robust order book of Rs 3,000 crore.

The Murugappa Group has an engineering division which may hold synergies with CG Power and Industrial Solutions Ltd. that designs, manufactures, and markets products related to power generation, transmission, and distribution.

Also read: Neutron Valli Arunachalam On The Chain Reaction She Hopes To Set Off At Murugappa

The Chennai-based Murugappa Group is the holding company for a group of businesses.

The Group holds diversified interests in abrasives, engineering, farm inputs, sugar, confectionery, plantations, bio-products, chemicals, nutraceuticals, insurance and financial services.

Tube Investments of India is one of the country's leading manufacturers of a wide range of products for major industries such as automotive, railway, construction, mining and agriculture.

The company's three main verticals are engineering, metal formed products and bicycles, according to the company website.

It has also forayed into TMT bars and truck bodybuilding business and is additionally exploring opportunities in the optic lens and other vision systems for the auto industry, it said.

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