FIs throw spanner in L&T's restructuring process - Views on News from Equitymaster

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FIs throw spanner in L&T's restructuring process

Mar 15, 2000

The financial institutions that have an exposure to Larsen & Toubro have once again demanded that the company not pursue its restructuring exercise. This statement comes after several earlier attempts to stall the process. L&T has however stated that it is going as per the stated plans. L & T is the largest engineering, procurement and construction (EPC) company (58% of total revenues) in India. The company also has major business interests in cement (24% of total revenues, capacity 12 mtpa), and software.

The rationale put forward by the financial institutions is that their exposure to the cement industry would increase dramatically if L&T were to hive off its cement business. Instead they have proposed that either the company repay the loans before the hive off, or not pursue the restructuring activity.

All parties except the financial institutions have appreciated the restructuring plan. The reasoning that exposure to cement would increase should not be worrying especially in view of the rise in cement prices and probability of better demand supply situation in coming years. Further, as and when the cement division is hived off and listed on the bourses, the money raised could be used to repay the debt. The worry on the part of the FIs is therefore not well founded.

L&T on the other hand has already suffered a sharp erosion in market capitalisation as a result of the delay in the implementation of the restructuring plan. Any plan to drop the restructuring exercise may adversely affect sentiment.

Market View:
Analysts have rated L&T as a 'BUY' on account of the rising demand for cement. As the other divisions of the company are already performing well, the turnaround in the cement division is expected to give a boost to the bottomline of the company. Further to this, the restructuring plan initiated by the company has also supported the rating.

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