Murugappa group’s engineering firm Tube Investments of India Ltd (TIIL) is picking up a controlling stake in the fraud-hit CG Power & Industrial Solutions for a consideration of Rs700 crore.
As per a regulatory filing by CG Power (erstwhile Crompton Greaves, the electrical equipment maker), TIIL will be issued 64.25 crore shares at Rs8.56 apiece aggregating to Rs550 crore. Besides, the Murugappa group company will also invest Rs150 crore in the company (that counts private equity firm KKR as a minority investor) over the next 18 months in the form of buying warrants that can be converted into equity shares. The board of CG Power at its meeting recently has approved the investment. The Rs550-crore investment will give TIIL about 51 per cent equity stake in CG Power and this will rise as and when warrants are converted into equity.
The development comes almost a year after CG Power plunged into turmoil when 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”. After the fraud came to light, the company sacked founder Gautam Thapar as chairman, and a new board thereafter undertook cleaning up of the accounts and to fix governance issues. Processes have been overhauled and money siphoned off from the company is being sought to be recovered.
Hit by fraud
However, the preferential allotment is subject to TIIL winning a so-called Swiss challenge process to be undertaken by CG Power’s lenders by August 28 and the lenders settling the company’s debts. The allotment is also subject to approval from CG Power’s shareholders and regulators including the Competition Commission of India. The Serious Fraud Investigation Office (SFIO) as well as SEBI are probing former management of CG Power for lapses and fraud. CG Power is also talking to lenders led by SBI for the restructuring of Rs2,200 crore of debt.