Rane Group splitting flagship, disentangling cross-holdings

Rane Group, the Chennai-based auto components maker, is bifurcating its flagship firm Rane (Madras) Ltd in a bid to separate investment and manufacturing activities and disentangle cross-holdings.

The promoters are moving all their holdings in the group's three listed companies (the other two being Rane Brake Linings Ltd and Rane Investment Ltd) to a new entity, Rane Holdings Ltd. The new firm will be born out of the demerger of RML and its shareholding pattern will mirror the shareholding af RML, in which the promoter group currently has 51 per cent stake.

Explaining the exercise to consolidate the holdings with a new company, which will also be listed, L Lakshman said "We want to be seen as an auto component major and our shareholders can now have the opportunity to invest in the consolidated basket of all our operations."

The group's sales in 2003-04 grossed Rs 800 crore. The promoters are selling the shares held by them in Rane Engine Valves Ltd to three group companies "" RML, Rane Brake Linings Ltd and Rane Investment Ltd.

In exchange for every share in Rane Engine (valued at Rs 410 a share), they will receive two shares of RML valued at Rs 146 each and a balance consideration of Rs 118 in cash "" that would come out of the combined kitty of RML, Rane Investment and Rane Brake Linings.

As a goodwill initiative, RML and Rane Brake Linings would make an open offer to their non-promoter shareholders on the same terms for 20 per cent of Rane Engine's share capital.

Rane Investment is a subsidiary of RML, in which the flagship holds 51 per cent, while the remaining 49 per cent is held by Rane Brake Linings.

In keeping with Securities and Exchange Board of India regulation, the promoters will make and open offer for RML's capital to non-promoter shareholders.

Subsequent to this, RML will de-merge its manufacturing and investment activities with Rane Holdings having controlling stake in all the manufacturing entities.

At this juncture, RML's 51 per cent stake in Rane Investment will also move to Rane Holdings. Rane Brake Linings will continue to hold the 49 per cent stake in Rane Investment.

The disentangling will not be fully achieved at the end of the exercise as the cross-holdings between Rane Engine and Rane Brake Linings will remain "" The former will continue to hold about 20 per cent in the latter, and the latter will have a 9 per cent stake in the former.

"The effort will be to unwind cross-holdings to consolidate with Rane Holdings," said R Srinivasan, vice president, financial services, Rane Group.

Kar Mobiles Ltd, the other group company, will not be affected by the moves, though RML's stake in the company will move to Rane Holdings.

The promoter family holding will, however, not be handed over to Rane Holding for now. RML and Rane Engine together hold about 30 per cent in Kar Mobiles. The Rane holdings in the joint venture companies, Rane TRW Steering Systems Ltd, Rane Nastech Ltd and TRW Rane Occupant Restraints Ltd will remain with Rane Investment.

While Rane Investment will initially become a subsidiary of Rane Holding, in due course it could be merged with the parent.

RML will cease to be a holding company for other group companies and concentrate on being a manufacturing company.