Pmo Probes Torrent Takeover Of Aec

Following an investor complaint, the Prime Ministers Office (PMO) has launched a probe into the management takeover of the Ahmedabad Electric Company (AEC) by the Torrent group. The deal has been questioned in several quarters, including at the political level.

The AEC being a state public sector undertaking, its acquisition requires several Central clearances, including a go-ahead from the Foreign Investment Promotion Board (FIPB), the Securities and Exchange Board of India (Sebi) and the Department of Company Affairs (DCA).

Government sources said the PMO has been informed that no objections have been raised by the concerned Central government departments relating to the acquisition. The department was the last to give the go-ahead signal, and clearances under intercorporate investments and loans were granted by the department a fortnight ago.

 

The clearances by the government departments are required to ensure that the deal subscribes to norms on foreign direct investment, intercorporate investments and loans, and takeover pricing.

Sources said the deal was fast acquiring overtones of snowballing into a political wrangle at the Gujarat state government level with the Bharatiya Janata Party (BJP) and the Left parties challenging the acquisition.

Significantly, the acquisition price has also been questioned by the state government officials. Following objections raised by the state finance department, the acquisition price was renegotiated and raised to Rs 117 crore instead of the Rs 90 crore that had been originally envisaged.

State government sources, however, said this price was still lower than the Rs 170 crore estimated by the valuation report. The finance department has also, reportedly, submitted a formal dissent note against the acquisition price of Rs 117 crore.

The AEC was among the first to be included in Gujarats programme of disinvesting in public sector undertakings, launched after the state government decided to opt for state level fiscal correction, backed by ADB funding.

The Gujarat government holds a 28.89 per cent in AEC, which when coupled with institutional stake, gave the government management control of the company prior to its takeover.

The Torrent groups management takeover of AEC is being questioned both on the modality adopted for disinvestment and the pricing of the shares.

Since management control is being transferred along with the divested stake, queries are being raised as to why the takeover route and not competitive bidding - has been adopted for divestment.