Hyderabad-based IVRCL Group is merging its listed group companies, IVRCL Ltd and IVRCL Assets & Holdings Ltd, besides hiving off its real estate and tower manufacturing business into a different subsidiary in a major restructuring.

The deal will involve shareholders of IVRCL Assets, which includes private equity firm Ascent Capital, swapping their shares for a stake in the listed flagship firm IVRCL Ltd. IVRCL Assets will also bring in the toll roads business under the parent company.

The board of IVRCL Ltd approved the share swap deal with IVRCL Assets on Friday. Under the deal, shareholders of IVRCL Assets will receive 5 fully paid-up equity shares of Rs 2 each in IVRCL for every 6 shares of Rs 10 each. The deal will need to lead to major equity dilution even as IVRCL, which holds 75.72 per cent stake in IVRCL Assets, will cancel its shares upon the merger rather than creating treasury stock.

Ascent India Fund III, which invested Rs 150 crore in IVRCL Assets last year for 5.9 per cent stake, will hold 3.15 per cent in IVRCL Ltd post-merger, according to VCCircle estimates.

Other investors in IVRCL include Azim Premji's Zash Investment, HSBC Global Investment Funds and Norwegian sovereign wealth fund Government Pension Fund Global.

The share price of IVRCL Assets shot up by nearly 20 per cent in Monday morning trade and was quoting at Rs 31.6, up 1.44 per cent in mid-day trades on the BSE. IVRCL was trading at Rs 37.85, up by 0.80 per cent.

IVRCL Assets & Holdings Ltd, formerly known as IVR Prime Urban Developers Ltd, owns assets of the group in areas like real estate and tollways. The group undertook a restructuring of business last year and merged IVR Strategic Resources and IVRCL Water Infrastructures Ltd with IVRCL Assets & Holdings. Post this restructuring, IVRCL Assets & Holdings handled all real estate and BOT projects while IVRCL Ltd took care of all EPC projects.

IVRCL and its listed subsidiaries (which include IVRCL Assets and Hindustan Dorr-Oliver) reported an aggregate net turnover of Rs 1,421 crore for Q2FY12, slightly down from last year’s Rs 1451 crore. The

group recorded a turnover of Rs 2,855 crore for the six-month period ending September 2011.

Fitch Ratings placed IVRCL's debt programme on Rating Watch Negative as it feels the responsibilty of equity funding BOT projects will fall on the parent instead of IVRCL Assets, which may require more debt. "Fitch had earlier noted that IVRCL would not extend any support to IVRAH for its equity commitments through further equity infusions or corporate guarantees. In this regard, it is selling off IVRCL Asset's assets, whose proceeds will be used to fund these requirements, the details of which have not yet been shared with Fitch," the rating agency noted in a statement.

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