L & Ts Cement Division Demerger Move May Be Delayed

Grasim's unexpected acquisition of 10 per cent equity in Larsen & Toubro is likely to further delay the engineering latter's proposed demerger of its cement division and the inclusion of a strategic partner in the business.

The company's board was planning to meet either in the last week of November or in the first week of December with the sole agenda of taking a final call on the demerger, sources close to the company said.

The L&T board had met last month, but the meeting remained inconclusive.

With Reliance having two directors on the L&T board, and at least one other independent director with close links with the Reliance group, Grasim may want to have an equal representation on the L&T board.

L&T had earlier said it will decide on the demerger and roping in of a strategic partner in the cement subsidiary by October. With a capacity of 16 million tonnes, L&T is India's largest cement player.

Grasim, with a 12 million capacity is India's third largest player. With such a large chunk of L&T's equity, Grasim may want to have a say in the demerger.

However, sources close to the company said L&T's executive management was now pondering whether at all to go ahead with the the demerger plan due to the sharp turnaround in the fortunes of its once-ailing cement division, and the lacklustre performance of its engineering business due to the recession.

The company has also been debating on options in case it decided against bringing in a strategic partner at this stage because of the stiff terms set by the suitors. One of the options include asking foreign equity firms to invest in the demerged cement business.

While L&T has now climbed down from its earlier stand of offering only a minority stake -- it is now looking at giving an equal 37 per cent in the proposed cement subsidiary -- the three suitors, Holcim, Lafarge and Cemex, has now sought management control.

The demerger issue subsequently is under Sebi glare as L&T's stock price climbed sharply from the sub-Rs 160 levels to over Rs 210 in the last one month.