Murugappa Group firm Tube Investments of India Ltd (TIIL) has agreed to invest Rs 700 crore in CG Power and Industrial Solutions Ltd for a 51 per cent stake, the scam-hit company said on Friday.
Tube Investments of India Ltd will be issued 64.25 crore shares at Rs 8.56 apiece aggregating to Rs 550 crore, CG Power said in a regulatory filing.
Also, TIIL will also invest Rs 150 crore in the company over the next 18 months in the form of buying warrants that can be converted into equity shares.
The Rs 36,900-crore Murugappa Group, which also had an engineering arm, had made a non-binding offer to invest in CG Power.
The board of CG Power at its meeting on Friday approved the investment, the filing said.
The investment is, however, subject to TIIL being declared the winner of the Swiss challenge process to be undertaken by the lenders of CG Power by August 28.
Under the Swiss challenge, other potential investors can make a counteroffer subject to the first investor (TIIL) have the right to match the counter offer.
The investment is also subject to lenders accepting one-time settlement and restructuring of debt, the filing said.
The Rs 550 crore investment will give TIIL about 51 per cent equity stake in CG Power and this will rise as and when warrants are converted into equity.
Murugappa Group will be issued fresh equity shares and the money that it brings in would be used to meet operating and working capital expenditure.
CG Power and Industrial Solutions, erstwhile known as Crompton Greaves, has an excellent order book as well as human and technical capital.
It got derailed in August last year after a board-instituted investigation found major governance and financial lapses, including some assets being provided as collateral and money from loans siphoned off by "identified company personnel, both current and past, including certain non-executive directors".
After the scam came to light, the company sacked founder Gautam Thapar as chairman, and a new board thereafter undertook cleaning up of the accounts and to fix governance issues.
Processes have been overhauled and money siphoned off from the company is being sought to be recovered.
The company is also talking to lenders led by SBI for the restructuring of Rs 2,200 crore of debt.
In the regulatory filing, CG Power said TIIL will be issued "64,25,23,365 equity shares of the company of face value of Rs 2 each at a price of Rs 8.56 (including premium) per equity share aggregating to Rs 550 crore." Also, "175,233,645 warrants, each carrying a right exercisable by the warrant holder to subscribe to one equity share per warrant within 18 months from allotment. The aggregate consideration for subscribing to equity shares upon exercise of the warrants is Rs 150 crore, of which Rs 37.50 crore constituting 25 per cent of the aggregate consideration will be paid on warrant subscription by the prospective investor," it said.
Post allotment of securities, "Tube Investments will acquire control over the company and will have the right to appoint a majority of the directors on the board of the company," it said.
The Serious Fraud Investigation Office (SFIO) as well as SEBI are probing former management of CG Power for lapses and fraud.
Sources said the business performance of CG Power has been affected due to a severe crunch in working capital and bringing in an investor like Murugappa Group would help tide over that.
Capital restructuring of the business and the company is critical as the working capital gap is wide and while the businesses are intrinsically strong, this starvation has led to lower revenue, they said adding the company has a robust order book of Rs 3,000 crore.
The Murugappa Group has an engineering division which may hold synergies with CG Power and Industrial Solutions Ltd that designs, manufactures, and markets products related to power generation, transmission, and distribution.
Chennai-based Murugappa Group is the holding company for a group of businesses. The Group holds diversified interests in abrasives, engineering, farm inputs, sugar, confectionery, plantations, bio-products, chemicals, nutraceuticals, insurance, and financial services.
Tube Investments of India is one of the country's leading manufacturers of a wide range of products for major industries such as automotive, railway, construction, mining and agriculture.
The company's three main verticals are engineering, metal formed products and bicycles, according to the company website.
It has also forayed into TMT bars and truck body building business and is additionally exploring opportunities in optic lens and other vision systems for the auto industry, it said.