Govt, EIL in share swap to restructure Bird Group holdings

Govt, EIL in share swap to restructure Bird Group holdings

Kolkata: The steel ministry has begun the restructuring of the Bird Group of Companies to give state-owned steel company Rashtriya Ispat Nigam Ltd (RINL) indirect control of iron ore miner Orissa Minerals Development Co. Ltd (OMDC), with a cashless share swap between the government and Eastern Investments Ltd (EIL).

EIL owns 33.98% of OMDC and is the key holding firm of Bird Group, which mines iron ore, manganese ore, dolomite and limestone in Orissa and was nationalized in the 1980s.

In September, the cabinet decided to make EIL a subsidiary of RINL so the steel maker would have access to OMDC’s iron ore reserves, estimated at about 200 million tonnes (mt).

But the Orissa government hasn’t renewed a number of OMDC’s mining leases, and the firm’s revenue in the nine months to end December declined by 55.3% over a year ago to Rs127.5 crore.

Swapping stakes

The Union government owns 50.42% in EIL. This could go up to 66.79% after a preferential allotment of shares, for which shareholder approval has been sought.

But the government would eventually retain only a 15.79% stake, after transferring 51% to RINL, EIL said in a notice it sent to shareholders for an extraordinary general meeting to be held on 19 March.

The government currently controls 48.18% in OMDC, including EIL’s holding. Under the restructuring, the government will transfer its 14.2% stake in OMDC to EIL, which in turn will offer its own shares to the government.

Another similar cashless share swap would take place for consolidation of EIL’s holding in another Bird Group firm, Bisra Stone Lime Co. Ltd (BSLC), which mines limestone. This would make BSLC, too, a subsidiary of EIL. The restructuring would result in the government divesting its ownership of OMDC and BSLC, and EIL consolidating its holding in these firms ahead of Bird Group’s integration with RINL.

OMDC as subsidiary

EIL has said it would acquire at least 11,000 shares of OMDC to turn it into a subsidiary.

But because OMDC has a small equity base of 600,000 shares, buying 11,000 shares may not be easy unless EIL persuades institutional investors such as Life Insurance Corp. of India (LIC), the country’s biggest insurer, to sell.

LIC owns 103,500 shares, or a 17.25% stake, in OMDC.

“The EIL management has already started negotiating with LIC," said an OMDC director who didn’t want to be named. EIL had said in its notice it would buy 11,000 shares of OMDC “either from LIC or from (the) open market."

Open offer unlikely

The government hasn’t clearly said if RINL would make an open offer to EIL and OMDC shareholders.

Under Indian regulations, anyone acquiring 15% or more in a listed firm is required to make an open offer for at least another 20% stake in that firm.

But in this case, because shares are being transferred by the government to a firm wholly owned by it, and for free, RINL might not have to make an open offer, said Rajan Shah, a Mumbai-based stockbroker.

The integration with RINL, however, would benefit OMDC’s shareholders in the long run because it would strengthen the miner’s operations, he added.

Harsh Roongta, an independent equity analyst, said it was a disappointment for OMDC and EIL shareholders that they would not be given an exit opportunity, more so because “the stock is illiquid".

OMDC shares are listed only on the Calcutta Stock Exchange. The firm wants to list on bigger bourses such as the Bombay Stock Exchange, but cannot because it doesn’t have the requisite number of independent directors on its board.

Its equity base, too, is smaller than the threshold set by bigger bourses for listing.