Kumar Mangalam Birla will directly purchase a stake of about 16 percent in cement to garments maker Century Textiles and Industries, which he is eventually set to inherit from grandfather Basant Kumar Birla, according to a notice to shareholders.
Four private companies will be used to consolidate the holding of the Aditya Birla Group chairman for the first time in the 117-year-old history of Century Textiles. Aditya Marketing and Manufacturing Ltd, Essel Mining and Industries Ltd, IGH Holdings Ltd and Padmavati Investments Ltd will subscribe to 1.86 crore preferential warrants of Century, which will be converted into equity shares in 2015. Aditya Marketing and Padmavati Investments hold 0.08 percent of Century. After conversion, these four investment companies will together hold a 16.77 percent stake in Century. Birla family companies Pilani Investments and Kesoram Industries own 36.78 percent and 2.95 percent, respectively, of Century. The total promoter ownership will rise to 50.21 percent from 40.23 percent after the conversion. The company will seek approval for the proposal at a shareholders’ meeting on June 4. An Aditya Birla Group spokesperson declined to comment. The price of conversion will be fixed according to the Securities and Exchange Board of India (Sebi) formula of the 26-week average trading price or two-week average price. At the current six-month average price, Kumar Mangalam Birla will have to pay. Rs 600 crore to convert these warrants into equity. The money will be used to trim debt, the company told shareholders.
There will be no management shift. “There will be no change of control of the company pursuant to the preferential allotment,” the company said in its notice to shareholders.
The move comes as Kumar Mangalam Birla’s $40 billion group is evolving into a global conglomerate. The promoters own a 40 percent stake in Century mainly through listed holding company Pilani Investments. The four companies will convert 25 percent of the warrants after shareholder approval and 75 percent in 18 months. BK Birla has publicly stated several times stated in the past that Century will be inherited by his grandson. Company secretary DK Agarwal told shareholders the ultimate beneficiaries of the warrants will be BK Birla, his wife Sarala and grandson Kumar Mangalam Birla. “The stake hike to over 50.1 percent will give Birlas full control of the company and shows confidence in the company to its shareholders,” said Arun Kejriwal, founder of the investor research firm named after him. “But the stake of shareholders will get diluted without giving them a chance to maintain it like a rights issue, while the management argument will be to purchase shares from the market”.