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ShareInfrastructure Leasing and Financial Services (IL&FS) appears set to take over Maytas Infra soon.
The acquisition could be through the creeping route or an offer to purchase shares from the public.
Some might consider this a farfetched conjecture, coming as it does after the Company Law Board's (CLB) decision on February 27 this year not to allow IL&FS even a board representation on the ground that there was an inherent conflict of interest in it being both a significant shareholder in the company and a significant creditor.
IL&FS was also a competitor as it sought to promote projects in which it held an equity stake, the CLB had noted.
But, the turn of things could well leave the CLB sulking, for IL&FS is indeed poised to scoop up the Hyderabad firm.
Sample the following facts:
On February 11, newspapers reported a high-level meeting between senior officials of the Andhra Pradesh government and IL&FS that took place the previous day.
According to these reports, IL&FS wanted to work out a solution for Maytas Infra as it was the leader of a consortium of around 19 banks and financial institutions that had collectively lent Maytas Infra Rs 5,000 crore and had partnered others in several major Maytas projects including the Hyderabad Metro.
On February 26, the CLB reserved its order on a petition by the Government of India requesting that the Maytas Infra board be superseded. Instead, the CLB stated that it would not allow IL&FS, which owns a 37% stake in Maytas Infra, to get a seat on the board because it is a competitor. The CLB decided to appoint four independent directors instead, and left it to these directors to decide the fate of Maytas Infra.
On March 27, IL&FS Financial Services Ltd informed the Securities and Exchange Board of India (Sebi) that it had increased its holding in Maytas Infra by 4.89% (because money borrowed against these pledged shares could not be repaid), thus taking its holding in the company to 14.5%.
Clearly, while IL&FS itself directly controls only 14.5% of the equity share capital of Maytas Infra, as much as 27.5% equity is held by other companies close to or acting in concert with IL&FS, which takes the stake under their collective control to 42%.
Now, as per Sebi rules, any company that acquires more than 20% of the share capital of a listed company must make an open offer to the public. Logically, therefore, IL&FS should have made a public offer for Maytas Infra shares.
An email query to IL&FS asking why it should not be subject to Sebi's takeover norms elicited no response.
An email query sent to Sebi four days ago also remained unanswered.
The Reserve Bank of India (RBI) too did not respond to a question on whether the loans of Rs 5,000 crore to Maytas meant IL&FS was acting as a lending bank or a non-banking financial services company and hence came under the apex bank's purview.
In any case, the fact that IL&FS has publicly declared its intention to own funds of around $20 billion by 2010 (as against around $2 billion now) does indicate it is a very large player in India's financial markets and therefore needs to come under the regulatory control of the government.
The silence of the RBI and Sebi indicates that IL&FS has continued to operate in several grey areas. They span activities where IL&FS acts as a trustee for lenders and for public issue of shares and debentures. IL&FS is also an active investor in the markets and advises state governments on which party to partner with for setting up infrastructure. And finally, it also owns several infrastructure projects, the most notable being the Noida Toll Bridge Co Ltd, which is one of the biggest beneficiaries of a changed government toll policy that hurts taxpayers but benefits infrastructure developers and toll-road concessionaires.
Significantly, many of these fund-based activities continue to go unsupervised by the regulators, and the general public has no way of learning about them except by accident as in the Maytas Infra hearings before the CLB.
As far as Maytas Infra goes, it is quite likely IL&FS will adopt one of two strategies --- continue with creeping acquisition of shares till it owns over 50% stake and then take charge of the company by voting in its own directors at the next AGM, or go in for a public offer, as required by the Sebi Takeover Code. Either way, it looks like IL&FS would become the next owner of Maytas Infra.
One wonders how the CLB would react to this development.
