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C.R. Sukumar

SRI KALAHASTHI, March 21

ELECTROSTEEL Castings Ltd (ECL), the Kolkata-based Rs 550-crore cast iron and ductile iron spun pipes major, is currently negotiating with the financial institutions to acquire their 14.5 per cent holding in Lanco Industries Ltd (LIL), the Rs 98-crore pig iron and portland slag cement company, belonging to the Hyderabad-based Rs 1,500 crore Lanco group.

In terms of a strategic alliance entered into with LIL during the first week of this month, ECL would acquire a controlling stake of 51 per cent in LIL and 49 per cent holding in Lanco Kalahasthi Castings Ltd (LKCL).

Of the proposed 51 per cent holding in LIL, Electrosteel would pick up a stake of 36.5 per cent in LIL through preferential allotment route. Accordingly, the LIL board has recently approved a resolution to allot 2.2-crore equity shares of Rs 10 each at par, aggregating to Rs 22 crore, in favour of ECL.

In terms of the alliance, Electrosteel proposes to acquire the balance 14.5 per cent from the financial institutions, which include IDBI, ICICI and IFCI, the ECL Managing Director, Mr Umang Kejriwal, told newspersons at the Lanco Industrial Complex located at Rachagunneri in Chittoor district of Andhra Pradesh.

Altogether, Electrosteel would invest Rs 26 crore to acquire the controlling stake in LIL. As a result of preferential offer, the post-allotment paid-up equity of LIL would increase to Rs 52 crore from the current Rs 30 crore.

Of the Rs 36 crore paid-up equity of LKCL, Electrosteel would pick up 1.76 crore shares of Rs 10 each at a premium of Rs 14.5 per share, aggregating to Rs 43 crore, from the promoters of Lanco.

As a result, the holding of Lanco group in LKCL would stand reduced to 40 per cent and of the non-resident Indian group to 11 per cent.

Justifying the premium charged for the shares of LKCL despite the fact that the company was suffering losses of around Rs 26 crore currently, the Lanco Group Director, Mr L. Madhusudhan Rao, said the valuation was done by KPMG, which took into consideration the entry barriers in ductile iron spun pipes industry and technological superiority of the LKCL manufacturing facility.

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