Asea Brown Boveri of Switzerland is picking up 70 lakh preferential shares worth Rs 70 crore in ABB-ABL, the Durgapur-based boiler maker which was taken over by ABB India two years ago under a rehabilitation plan cleared by the Board for Industrial and Financial Reconstruction.
ABB Holdings of South Asia will pick up the cumulative redeemable preferential shares of Rs 100 per share. The preferential shares will carry a 13 per cent return on investment for a period of 10 years.
Once the share transfer takes place, ABB India which has a 76 per cent stake in ABB-ABL will utilise the amount to revive the company. Howeve, ABB's application, which was submitted last November to the government, has not been cleared yet as the industry ministry is viewing the deal as an external commercial borrowing (ECB) and not as a direct foreign investment.
The deal has been cleared by the Reserve bank of India.
In its note on the application, the industry ministry has said that since preferential shares are not regarded as pure equity instruments, the proposal should be considered as an ECB issue. Thus, ABB would now have to seek additional clearance from the finance ministry before it get a final clearance from the foreign investment promotion board.
According to a senior ABB official, ABB-ABL needs management support and, as equity capitalisation is already quite large, the parent company has opted for the preferential share route. He added that the company did not visualise its forthcoming investment as an ECB as equity from the redeemable shares is being placed as a rupee fund.
ABB Holdings South Asia Ltd already has, with the government's permission, already set up a 100 per cent subsidiary in the country.
This company would act as a holding company and consolidate the shareholding of ABB Switzerland and its overseas subsidiaries held in different Indian companies.
The takeover of the ailing boiler company by ABB saw an initial infusion of Rs 52 crore for modernisation and diversification which gave ABB a 76 per cent stake in the company. A greenfield project in the equipment manufacturing business would have, otherwise, cost ABB at least Rs 260 crore. The takeover is also expected to be supported by ABB's turbine and generator manufacturing factory coming up at Baroda to supply equipment on a turnkey basis.
