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The hydrocarbon division of L&T has to be necessarily carved out into a subsidiary to achieve its potential and tap global opportunities, said A. M. Naik, Chairman, L&T.
Naik was addressing an extraordinary general meeting convened on directions of the Bombay High Court to obtain shareholders nod on the issue.
The L&T board has approved a scheme of arrangement for consolidating the assets and liabilities of its hydrocarbon business with its wholly owned subsidiary L&T Hydrocarbon Engineering Ltd (LTHE). For this, LTHE will pay L&T Rs 1,760 crore in cash. The appointed date of the scheme is April 1, 2013.
All assets and liabilities would be transferred at book value and there would be no issue of shares by LTHE to the shareholders of the company post the transfer of the hydrocarbon business.
LTHE would continue to remain L&T’s 100 per cent subsidiary.
As per SEBI norms, an independent valuation report is not required as the scheme of arrangement does not alter the shareholding pattern of the company.
Naik said, as of now, the hydrocarbon business was about 8-9 per cent (about Rs 7,000-8,000 crore) of L&T’s total business and more India-centric. Being more India focussed the business was stagnating. The new entity had to go global for which new talent needs to be infused alongside international leadership. Being a highly specialised field, where engineering and execution were key elements, talent shifted at twice to thrice their existing remuneration. This could not happen if the division remained within the L&T structure.
A 30-40 growth for LTHE is estimated once it is outside the L&T structure.
Around 4,100 employees would be transferred to the new entity, which would be able to address its routine capex requirements of about Rs 150 crore. L&T Group has about 60,000 employees.
If any large acquisitions came up, the parent company would step in to provide the funding, Naik said.
On queries about listing the subsidiary, he said the issue would come up when the company achieved an optimum size, which he felt would take at least 3-4 years.
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