Mumbai: India’s largest engineering conglomerate by market value, Larsen and Toubro Ltd (L&T), will sell its 11.49% stake in UltraTech Cement Ltd, an Aditya Birla Group company, to a group of investors, a person familiar with the development said.
The sale, through so-called off-market deals before the stock market opens on Thursday, can fetch as much as Rs1,000 crore, said the person.
The UltraTech stock rose 4.66% to close at Rs763.15 on the Bombay Stock Exchange on Wednesday even as the exchange’s benchmark Sensex index gained 2.25% to close at 15,466.81 as investors rushed to buy stocks. The L&T stock rose 3.8% to close at Rs1,633.65
At this price, the value of L&T’s stake at UltraTech is Rs1,091.56 crore. According to the person mentioned in the first instance, the shares will be sold at a discount. Normally, shares are sold at a discount when they are sold in bulk. Selling pressure depresses the prices of a stock.
L&T may offer the shares at Rs720-735. At the time of going to press, the book runner got bids for 12 million shares out of 14.3 million on sale.
Grasim Industries Ltd, the flagship cement firm of the Aditya Birla Group, along with associates, owns 54.78% in UltraTech and has the right of first refusal to acquire L&T’s stake.
The latest development indicates that L&T has obtained the go-ahead from Grasim to sell the stake to other buyers.
Two investment bankers in the know independently confirmed this to Mint.
L&T has appointed Citigroup to be the main book runner for the deal. “A slew of trades are expected to be transacted tonight and before the market opens to minimize the impact on the UltraTech share price,” one investment banker said.
An L&T spokesperson confirmed the move.
L&T has to exit its stake in UltraTech—formerly L&T UltraTech Cement Ltd—by December, according to a 2005 agreement. The same agreement confers the right of first refusal to Grasim.
“The right of refusal is not more than 60 minutes after L&T gives us the offer and selling price,” said D.D. Rathi, Grasim’s whole-time director and chief financial officer.
Going by the agreement, if Grasim refuses to buy the shares, L&T can sell its stake in tranches to a scattered group of investors, and each potential investor is allowed to own less than 1% of the UltraTech stake. The company is barred from selling stake to rival cement makers.
In 2001, Grasim acquired a 10.45% stake in L&T from Reliance Industries Ltd, in a negotiated stock market transaction. Later, the company made an open offer for an additional 20% stake after its stake rose beyond 14.9%, the mandated trigger to make such an offer under the acquisition guidelines of Indian capital market regulator.
The firms slugged it out between 2001 and 2005 before L&T spun off its 16 million tonnes per annum cement business into L&T UltraTech before selling a majority stake to Grasim, a deal that was expected to end the threat of a hostile takeover of the engineering firm.
L&T is currently locked in a legal battle with Grasim over the shares owned by the Kumar Mangalam Birla-controlled company in L&T.