BEML buyer may face restriction on raising capital for a few years

The new buyer of BEML may not be able to raise capital from the market for a few years after the company's privatisation. The government will include such a clause in the draft share purchase agreement (SPA) and request for proposal (RFP) for BEML.
 
This is being done as such a move would lead to further dilution of the sovereign’s stake below 28 per cent after privatisation, said an official. The government plans to sell 26 per cent out of the total 54.03 per cent stake it holds in the defence public sector company, along with transfer of management control.
 
The clause would specify the number of years for which the new management of the company can’t raise resources from the market, as it would lead to lowering of the government’s stake, which it intends to hold even after the strategic divestment.
 
This was discussed in the meeting of the inter-ministerial group (IMG) chaired by Department of Investment and Public Asset Management (DIPAM) secretary on June 18 and June 22, which met to finalise the draft RFP and SPA for privatisation of BEML.
 
The cap on raising capital would be decided after further consultations, and will be finalised by the Core Group of Secretaries on Divestment (CGD) headed by the Cabinet Secretary. Once finalised by the government, this will be negotiated with the new buyer before the deal is sealed.

 
The government would soon finalise the draft RFP and SPA and share it with the shortlisted bidders, the official quoted above said. The bidders have already started due diligence at their end, and the access to virtual data room (VDR) will soon be provided to them, he added.
 
The draft RFP and SPA would provide clarity on certain obligations that the successful bidder will have to undertake, such as employee protection, asset stripping, business continuity, and lock-in of shares acquired in the proposed transaction.
 
Earlier this month, the company informed the exchanges that DIPAM and NITI Aayog have agreed to the proposal of incorporating a wholly-owned subsidiary of BEML for demerger of surplus land and asset as part of the company’s strategic divestment process.