McNally Bharat said on Wednesday that EMC Ltd, a private entity involved in power transmission and distribution, will invest ₹100 crore in it through the preferential allotment route. In March, EMC had invested ₹50 crore through conversion of warrants.
The two investments would take EMC’s stake to 29.64 per cent in McNally Bharat. Currently, Willamson Magor group, controlled by BM Khaitan family, has 29.73 per cent in McNally Bharat.
The investment deal will also trigger an open offer from the joint promoters for 26 per cent of the enhanced paid-up capital. According to sources, post the open offer, both the promoter groups would have almost equal holding in the company.
McNally Bharat in a statement said, “Under an investment agreement entered into by the existing promoters, EMC and the company, McNally would be jointly controlled by the existing promoters and EMC with both parties having equal board representation in McNally Bharat”. Manoj Toshniwal and Manish Agarwal will represent the interest of EMC group on McNally Bharat’s board.
McNally Bharat would use the fresh investment to meet its working capital requirement. The company also plans to raise another ₹200-crore investment to meet additional requirement of working capital in the future.
Motilal Oswal Investment Advisors (MOIA) and Leverage Capital acted as the strategic and financial advisors to the deal. Khaitan and Co advised McNally Bharat on the legal issues related to the transaction. MOIA would also be the manager to the open offer.
The company would hold an EGM to seek shareholders permission on the investments and the related proposals. The McNally Bharat stock jumped 20 per cent to touch the upper circuit limit and remained frozen at ₹94.90 on BSE at close.
Improve Cash position The investment deal and the proposed open offer for McNally Bharat will achieve the dual objective of maintaining balance in holdings between the co-promoters as well improve cash flow for the company. The premium of ₹90 for a share of the ₹10 stock of McNally Bharat would improve the cash position of the company, market sources said.
EMC, which is poised to become co-promoter with around 30 per cent stake after the fresh investment, will be at the same level as the existing promoter before the open offer.
The twist in the proposed open offer is that the existing promoters have been considered as persons acting in concert. Thus, both the promoter groups will have the equal opportunity to pick up shares offered in the “open offer”.
Another development to watch out for would be the moves of minority investors, including Rakesh Jhunjhunwala and his wife Rekha. Both jointly hold around 10 per cent stake in the engineering company. According to market insiders, though the price movement of the McNally Bharat stock before the open offer would influence share tender by the holders in the public category, a full response to the 26 per cent offer would take the joint promoters’ stake to around 86 per cent. “This will require offloading by the promoters to the SEBI-allowed level of 75 per cent or create a situation for delisting of the stock,” said a merchant banking source.