Sale Of CG Power’s Hungary Business Falls Through

CG Power and Industrial Solutions Ltd. said its deal with Budapest-based companies to sell its loss-making Hungary business, which was pending for nearly two years, has been terminated.

Certain conditions agreed to be performed between the parties have not been met, hence the agreements have been terminated with effect from April 30, 2019, the Gautham Thapar-founded Avantha Group flagship said in an exchange filing late on Monday.

Ganz Villamossagi and Alester Holdings had agreed to buy CG Power’s Hungary business (excluding switchgear) at an enterprise value of €38 million. This business was owned by the power equipment maker’s subsidiary, CG Electric Systems Hungary Zrt. The deal, CG Power had earlier said, was pending as the buyers didn’t provide letters of comfort to banks related to the transfer of debt. The deadline for completion of the deal was extended several times, the latest being April 30, 2019.

CG Power, however, said it continues to explore opportunities for divestment of its Hungary business. The company will take appropriate steps to improve the operational and financial efficiency of the business, according to the filing.

The pending completion of sale of the Hungary business has been eating into the profits of CG Power. The Hungary business reported a loss of Rs 11 crore in the third quarter of the previous financial year and Rs 45 crore for the nine months ended December.

Analysts View

Any delay in the Hungarian business divestment is a key concern for the company, Venkatesh Balasubramaniam, analyst at Citi, said in his third-quarter earnings report.

A report by HSBC said investors are still looking for clarity on the sale of its Hungary operations, and need greater reassurance on the need for investments in loss-making subsidiaries.

Ashish Jain, analyst at Morgan Stanley, that recently dropped coverage on CG Power, said sale of the Hungary operations is key for the company’s international business restructuring.

Story So Far

• August 2017: Receives offer from Ganz Villamossagi Zrt and Alester Holdings; CG Power aimed to close deal by November 2017.
• September 2017: Management said a key statutory approval was pending, highlighting deal will get delayed beyond November 2017.
• February 2018: CG Power expected the deal to close by March 2018.
• July 2018: Transaction delayed as it was awaiting no-objection certificate from banks.
• February 2019: CG Power extended deadline to close Hungarian business deal to April 30, 2019
• May 2019: Deal terminated