New Delhi, Feb 20: Equity expansion is generally frowned upon by the market as it results in earnings dilution. However, RPG Ricoh and Trafalgar Construction House are rising on bourses despite an increase in their equity base. RPG Ricoh, which recently announced a preferential allotment offer, has been on the rise since the beginning of this month; the scrip has doubled from Rs 7.2 to its current level of Rs 14.20 in just 15 trading sessions. Simlarly, the Trafalgar Construction House (TCHIL) scrip has moved from Rs 195 to Rs 223 over the last five trading sessions notwithstanding an equity dilution through a rights issue.The reason for the buying interest is that the parent companies are hiking their stakes rise in these companies. While Norwegian industrial major Kvaerner is hiking its stake in Trafalgar Construction House (although the extent of the stake hike is not known), Ricoh Co. Limited of Japan is raising its stake in RPG Ricoh from 26 to 55 per cent. In fact, the Japanese firm intends to buyout the RPG group's stake, thereby raising its holding to 76 per cent.
At its recent AGM, the RPG Ricoh board passed a resolution to allot 43 lakh shares to Ricoh, giving it a majority holding of 54.83 per cent in RPG Ricoh's expanded equity of Rs 10.76 crore. The current share capital is Rs 6.46 crore. After the expansion of RPG Ricoh's equity base, RPG's holding in the company will come down from 35 to 20.4 per cent. Following the preferential allotment to Ricoh, the public holding will be reduced to 24 per cent. Ricoh's move to hike its stake in RPG-Ricoh is seen as a follow-up to the Japanese company's decision to hike its stake in Gestetner India to 51 per cent (the worldwide operations of Gestetner, UK, was taken over by Ricoh).
Similarly, Norwegian industrial major Kvaerner has applied for extra shares to hike its stake in Trafalgar House Construction India Limited to 75 per cent. As THCL's recent Rs 40.96 crore rights issue, in which Kvaerner had applied for the extra shares, has beenoversubscribed, it is not known how Kvaerner will get additional shares. The parent had earlier said that it would pick up the unsubscribed portion of the rights issue.
The FIPB has already permitted a stake increase by Cementation Company to 74 per cent. Cementation Company currently holds a 51 per cent stake in THCIL. In April 1996, it came under the wings of Kvaerner, when the Norwegian group assumed control of the UK-based Trafalgar House for which Cementation Company had functioned as a holding company. THCIL has a strong order book position with work-on hand estimated Rs 150 crore. It expects to end fiscal 1998 with a turnover of Rs 350-375 crore, at least 5 per cent of that foreseen as profit. The company had a turnover of Rs 240 crore in 1997.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
