Murugappa Group company Tube Investments of India Ltd will take control of CG Power & Industrial Solutions Ltd, a fraud-hit company that counts private equity firm KKR as a minority investor.
CG Power said in a stock-exchange filing on Friday its board has approved a proposal to issue shares and warrants on a preferential basis totalling Rs 700 crore ($93.4 million) to Tube Investments.
The development comes almost a year after CG Power plunged into turmoil when it detected a fraud by some employees, resulting in the firing of chairman Gautam Thapar. A board-led investigation found that these employees pledged the company’s assets without permission, understated advances to related and unrelated parties by Rs 4,796 crore and understated total liabilities by Rs 2,661 crore.
Soon after the fraud came to light, PE firm KKR—through non-banking finance arm KKR India Financial Services Ltd and its debt fund—acquired a 10.01% direct stake in CG Power by invoking pledged shares.
The electrical equipment maker said it plans to issue shares worth Rs 550 crore and warrants worth Rs 150 crore to Tube Investments. It will issue the shares at a price of Rs 8.56 apiece. Shares of CG Power jumped by the maximum permissible limit of 5% on the BSE on Friday to touch Rs 10.99 apiece. This gives the company a market value of about Rs 689 crore.
The preferential allotment is subject to Tube Investments 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.
In a separate filing with the stock exchanges, Tube Investments said the acquisition is likely to provide synergy for the companies as they are both engaged in engineering businesses.
Tube Investments’ operational, financial and governance capabilities will also help remove the difficulties that CG Power has been facing, it added.
Established in 1937, CG Power makes transformers, switchgear, circuit breakers, network protection and control gear, and power automation products.
The company ventured outside India through both organic and inorganic routes since 2005 and now has manufacturing bases in Belgium, Hungary, Indonesia, Ireland, France, the UK and the US. It has more than 20 factories in India.
CG Power's total income declined to Rs 3,169.48 crore in the year through March 2020 from Rs 5,355.6 crore the previous year.
Tube Investments' turnover fell 19% to Rs 4,053 crore in the last fiscal year, which it attributed to the slowdown in the auto industry, according to its annual report.
The flagship company of the Murugappa Group manufactures products for industries such as automotive, railway, construction, mining and agriculture. It operates three business divisions: engineering, bicycles and metal-formed products. The bicycle division is called TI Cycles of India, and sells brands like BSA, Hercules, Mach City and Montra.
The company has also entered into thermo-mechanically treated steel bars and truck body building business and is exploring opportunities in optic lens and other vision systems for the auto bars, as per its annual report.
The annual report also said it is focusing on a set of businesses that can reduce the company’s dependence on the auto sector.