IL&FS takes control of troubled Maytas Infra

IL&FS takes control of troubled Maytas Infra
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First Published: Tue, Sep 01 2009. 12 10 AM IST

Backing the deal: Minister for corporate affairs Salman Khursheed said on Monday that there was no sign of any accounting fraud at Maytas, and that money had not been transferred into the firm from Sa
Backing the deal: Minister for corporate affairs Salman Khursheed said on Monday that there was no sign of any accounting fraud at Maytas, and that money had not been transferred into the firm from Sa
Updated: Tue, Sep 01 2009. 12 10 AM IST
New Delhi/Hyderabad: Troubled Maytas Infra Ltd may finally be limping its way out of the woods.
India’s Company Law Board, or CLB, on Monday ruled that Infrastructure Leasing and Financial Services Ltd, or IL&FS—a firm that’s worked closely with Maytas both as a stakeholder and a partner in a key infrastructure project—will be the Hyderabad company’s new promoter.
IL&FS will increase its holding in Maytas to 37.1% from 14.5% by invoking a 22.6% stake pledged with it by the firm’s promoters. It will offer to buy another 20% from shareholders, as per Indian law, and inject Rs55 crore into Maytas within three months, CLB said.
Backing the deal: Minister for corporate affairs Salman Khursheed said on Monday that there was no sign of any accounting fraud at Maytas, and that money had not been transferred into the firm from Satyam. Pankaj Nangia / Bloomberg
A senior IL&FS executive said the infusion of this money would be through debt. Beyond that, Maytas would not get any fresh fund infusion through the change in management control, he said, asking not to be named.
CLB said IL&FS has to hold at least 26% share in Maytas for two years and maintain management control.
IL&FS, which focuses on the commercialization and development of infrastructure projects and provides expertise on project completion, plans to infuse liquidity into Maytas to start operations, develop an operating plan, improve processes and financial stability, and have the firm bid for infrastructure projects to rebuild sustainable growth, it said in a statement.
IL&FS also proposes to “develop a plan to raise fresh capital at an appropriate stage through a QIP/private placement to improve the financial position commensurate with the operational needs and growth”. In a QIP (qualified institutional placement), shares are issued to financial institutions such as banks without involving retail investors.
IL&FS will also appoint four nominees as directors on the board of Maytas, including the chairman. B. Teja Raju and B. Narsimha Rao, both directors on the existing board of Maytas, have agreed to resign.
Maytas, promoted by the family of B. Ramalinga Raju, has been in trouble since he confessed to the country’s biggest accounting fraud at his software firm Satyam Computer Services Ltd in January.
Since then, Maytas has faced a credit squeeze and lost several key contracts worth at least Rs13,000 crore.
Maytas’ shares rose by the daily limit of 5% and ended the day at Rs112.80 on the Bombay Stock Exchange (BSE). After the announcement, IL&FS Investment Managers, a part of the IL&FS group and a sister company of IL&FS Financial, rose as much as 20%. It ended trading 15.62% higher at Rs265.00, on a day the benchmark Sensex index fell by 255.70 points, or 1.6%, to 15,666.64 points.
Analysts reactions were mixed. The new management will take time to show results despite its construction experience, they said.
“I don’t think (Maytas’) profitability will improve because a lot of projects are stalled and a lot of employees have also left. There will also be a lot of penalties from the clients’ side because of delays,” said an analyst who declined to be named. “It won’t be out of trouble soon.”
“The company has now got a credible promoter in IL&FS. This will clear the uncertainties on the company’s future prospects,” said Arun Kejriwal, Head, Kejriwal Research and Investment Services Ltd.
Maytas has lost contracts the past few months, including the Rs12,312 crore Hyderabad Metro rail project, the Rs233 crore township project of Vendanta Resources Plc, and the Rs395 crore rural electrification project of state-owned Power Grid Corp. of India Ltd.
On Saturday, Maytas posted a net loss of Rs490 crore in 2008-09 against a net profit of Rs99.64 crore a year ago. The analyst expects to see losses from the company for a year.
“This transition will not affect Maytas projects, which include its ongoing projects valued at Rs7,000 crore and projects on build-operate-transfer basis valued at Rs4,000 crore,” corporate affairs minister Salman Khursheed said.
He added that Maytas owes Rs1,700 crore to banks and Rs750 crore to its vendors, and has bank guarantees worth Rs1,100 crore.
“All this is public money, which will be safe now,” said Khursheed, adding that Maytas had made a cash profit of Rs5 crore in the first quarter of 2009-10, against a Rs350 crore loss a year earlier.
Khursheed also said there was no sign of any accounting fraud at the firm, and that money had not been transferred into Maytas from Satyam. “In fact, Rs390 crore has gone from Maytas to Satyam,” he said.
A senior Maytas official, who did not want to be identified, said that as on 30 June, the company’s promoters had 13.73% of their holding pledged with lenders.
The Raju family will now become the second largest shareholder in Maytas, followed by foreign institutional investors who together hold 7%, and financial institution Sicom Ltd that has a 6% stake.
Khursheed said IDBI Bank Ltd, State Bank of India (SBI) and ICICI Bank Ltd, prime lenders to Maytas, have welcomed IL&FS taking over management control of the firm.
Though no transparent bidding process was in handing over Maytas to IL&FS, unlike at Satyam where Tech Mahindra Ltd won a bid to gain control over the company, Khursheed said the decision was arrived at following a consensus among stakeholders before CLB.
The ministry of corporate affairs had earlier moved CLB to supersede the board of Maytas following complaints from its lenders. In February, CLB allowed the government to appoint four nominees on the company’s board. Two of these directors will be retained on the new board.
Anirudh Laskar in Mumbai and Reuters contributed to this story.
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First Published: Tue, Sep 01 2009. 12 10 AM IST
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