McNally Bharat Engineering (MBEL), an associate company of the Williamson Magor Group (WMG) has reclassified its former promoter EMC Ltd as a public shareholder in the firm. The company will seek approval from its shareholders in the next 2-3 months via postal ballot over this reclassification.
EMC said it doesn’t participate directly or indirectly in any of MBEL's activities or exercise any control over the affairs of the company. EMC doesn't hold any managerial position at MBEL that prompted it to seek a reclassification of its shareholding.
A source in MBEL said that although the company had narrowed down on this decision in November 2018. On the other hand, EMC's stake in MBEL has been on a steady decline. EMC's director, Manoj Toshniwal said, “The shares of EMC were pledged and the lenders are invoking their pledge. This is the reason behind decline in stake."
The shares were pledged to raise capital for infusion into MBEL. EMC is the same company with which MBEL had previously tried roping in for a merger, but it didn’t work out.
After EMC became a strategic investor in MBEL with 19.77 per cent stake, WMG first came up with the idea to build east India’s largest engineering company with revenues over Rs. 7,000 crore and an order book exceeding Rs. 10,000 crore by merging its engineering entities – MBEL, Kilburn Engineering (KEL) and McNally Sayaji Engineering Ltd together with EMC.
As the proposal picked pace with the Khaitan family of WMG and the Toshniwal family of EMC, Toshniwal came on board of MBEL as additional director in October 2016 and he increased the stake to 26.66 per cent by the end of December 2016. However, negotiations fell through in December of the same year, Toshniwal resigned from the MBEL board and EMC’s stakeholding started declining. By December 2017, it had fallen to 24.89 per cent and by the end of December 2018, it stood at 6.80 per cent.
On the other hand, WMG and its group entities had infused around Rs. 1,000 crore into MBEL during 2016-2018. By November 2018, the Kolkata bench of NCLT had admitted EMC for insolvency resolution after the company defaulted on payments of around Rs. 6,500 crore.
Sources close to EMC said that the overall business sentiment in engineering, procurement and construction business had been muted in the country over the past few years which affected EMC’s business.