 "R-Infra revises demerger plan after LIC demurs")
LIC, which is both the largest institutional shareholder and a debenture holder in the company, has objected on the grounds that certain parts of the demerger plan would fall foul of the provisions of insurance law.
To address these concerns, Reliance Infrastructure (R-Infra) has made changes to the structure of the demerged entity and its original plan, and put these up for the court's approval.
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In March, the board of R-Infra had cleared a scheme of arrangement between the company and its wholly owned subsidiary, Reliance Electric Generation and Supply Private (REGSPL).
Under the scheme, the Mumbai power generation, transmission and distribution division, the Goa power station division and the windmill division of R-Infra would be transferred to REGSPL.
REGSPL would pay the aggregate lump sum cash consideration of Rs 6,282.5 crore to the company, according to the scheme. REGSPL was not to be listed separately and would house a debt of about Rs 5,800 crore.
LIC's objections arose from the fact that its charge over the assets of R-Infra on account of Rs 2,000-odd crore non-convertible debentures (NCDs) was sought to be shifted to the demerged entity, according to the scheme.
The insurance company, which holds 11.93 per cent in the company, has pointed out that according to the law it is barred from investing the debt/debentures of private companies.
Following the objections raised by LIC, the company has taken steps to address the concerns of the insurer by making changes to the structure of the demerged entity.
"Steps have been taken to convert REGSPL into a public limited company. LIC has also been informed of the changes," a source familiar with the development said.
LIC officials refused to comment on whether these changes were acceptable to them.
Confirming the development, a Reliance Infrastructure spokesperson said, "LIC had opposed our demerger scheme… of the premise that REGSPL is a private limited company and LIC is not allowed to invest in the debentures of a private company."
The spokesperson added REGSPL had been converted into a public limited company. "We have completed all the necessary formalities…. We have also informed LIC, through their advocate, of this conversion. We have also filed a petition with the Bombay High Court."
He said a majority of the shareholders had approved the demerger, which would go through after getting the nod from the high court.
"It is up to the court now. They can either accept the amendments or direct the company to go back to shareholders," said a shareholder, who has reviewed these objections.
According to the statements of the company, the demerger was aimed at increasing shareholders' value by leveraging diversified investment opportunities, attribution of appropriate risk and valuation to different businesses based on their respective risk-return profile and cash flows, pooling of resources at the company level and allocation of capital to each of the businesses based on risk-return, and simplified and transparent businesses and achieving operational synergies.
R-Infra has three business segments - electrical energy, EPC (engineering, procurement, construction) and contracts, and infrastructure.
Under the first one, it is engaged in generation, transmission, and distribution of electricity. It has a 500 Mw thermal power station at Dahanu, near Mumbai, a 220 Mw power plant at Samalkot (Andhra Pradesh), a 48 Mw power plant at Mormugao (Goa) and a 7.6 Mw wind energy farm at Chitradurga (Karnataka).
Of the Rs 6,282-crore consideration, Rs 5,580 crore is for the Mumbai division, while the Samalkot and Goa facilities are valued at Rs 560 crore and Rs 110 crore, respectively. The windmill is worth Rs 40 crore.
The EPC and contracts segment is engaged in the business of construction, erection, commissioning and contracting. The infrastructure segment develops, operates and maintains toll roads, metro rail transit systems and airports.
In December, the company acquired management control in Pipavav Defence.