State-run Bharat Heavy Electricals Ltd (BHEL) is estimated to see a one-time expenditure of about Rs 870 crore related to the proposed amalgamation of Bharat Heavy Plate & Vessels with itself.
Besides, there would be annual recurring expenses to the tune of Rs 75 crore with regard to employee salaries.
Bharat Heavy Plate & Vessels (BHPV) became a 100 per cent subsidiary of Bharat Heavy Electricals in 2008. BHPV, which is into engineering and heavy fabrication, was declared a sick entity by the Board for Industrial and Financial Reconstruction (BIFR) in October 2005.
The proposed amalgamation of Visakhapatnam—based Bharat Heavy Plate & Vessels Ltd with the company is projected to result in a one-time expenditure of Rs 869.92 crore, according to a notice sent by BHEL to its shareholders seeking approval for the scheme.
The figure includes an amount of Rs 224 crore towards liabilities arising out of “legal cases and excise duty/ service tax” and outstanding loans to BHEL worth over Rs 234 crore.
Besides, BHEL would see a recurring annual expenditure of Rs 75 crore on account of “employee payments for 2007 wage revision“.
BHEL would seek shareholders’ approval for the amalgamation scheme during their extraordinary general meeting scheduled for June 27.
The overall estimated cost of Rs 869.92 crore would be funded through the internal accruals of BHEL. Out of the total, “wage arrears of employees for 1997 wage revision is to be paid from BHPV internal accruals, which would become BHEL unit after merger”, as per the notice.
The projected cost excludes “working capital funds needed for day-to-day operations and also for payment of any contingent liability, if materialised at a later date“.
In February this year, the Cabinet had approved the merger of BHPV with Bharat Heavy Electricals.
“The merger will facilitate Bharat Heavy Plat & Vessels (BHPV) to become a unit of BHEL. BHPV would be able to participate in tenders, obtain orders and attract best vendors for procuring materials/capital goods,” an official release had said in February.
The release had also noted that BHPV’s performance was not up to the mark, as it remained a separate company and it could not derive full benefits of synergy with BHEL.