Welspun Group buys 7.5% stake in Indian arm

The company transfered construction orders worth Rs 550 cr in a unique no cash deal

In a unique no-cash deal, steel pipe manufacturer Welspun group on Tuesday increased its stake in Leighton Welspun Contractors (LWC) to around 40 per cent by transferring construction orders worth Rs 550 crore to the contractor firm.

In exchange to the engineering, procurement and construction (EPC) orders from Welspun Projects Ltd, LWC will issue shares worth 7.5 per cent stake, or Rs 115 crore.

Around two years back, the group had bought a 35 per cent stake in Leighton Contractors India, the Indian arm of the Australian construction and mining giant Leighton Holdings Group. Welspun had paid around Rs 470 crore for the acquisition.  

Welspun says the latest deal would let it exit the construction business, mostly. “Welspun Projects' focus on EPC is relatively low, and we will look only at engineering and procurement in the future. Welspun would more or less exit the construction business except the pending projects in the last lag,” said Akhil Jindal, head of finance and corporate strategy, Welspun group.

After ingesting 72 per cent of Welspun Projects' orders, LWC's orderbook would be around Rs  4,500 crore, while that of Welspun Projects would reduce to Rs  200 crore. The deal, however, is subject to shareholder approvals.

Jindal claims LWC, too, would gain from the deal as it would get entry into the orders in the water treatment and construction segment, in addition to gaining orders. “LWC is not present in the water segment significantly. Through this, it would get pre-qualification and a foothold into water,” he added.

While no fixed assets like equipment would be transferred as a part of the deal, 30-35 employees might move along with the orders. These would be the core employees.

Without the burden of EPC orders, Welspun might now look at more projects as a developer. “It would allow us to focus on developer's role. Earlier, we were more of a construction company. We have some road projects on the build, own, operate and transfer mode. Now, we can look at some selective opportunities as a developer,” Jindal said.