Post-conversion, the stakes of FL Smidth and Industrialisation Fund will go up to 21.11 per cent and 7.21 per cent, giving them a combined holding of just less than 29 per cent, while the local promoters' stake (with associates) will decline from 64.5 per cent to around 29.3 per cent.

At present, the Danish cement machinery major and Industrialisation Fund hold 6.85 per cent each in Saurashtra Cement. Two expatriate additional directors nominated by the foreign partners--Peter Gorn Christiansen and Martin M Kristensen--are being drafted on as wholetime directors on the board.Saurashtra Cement has categorically stated that the move is not aimed towards a takeover of the company by the foreign players.

This will stymie the Autoriders group's effort to take over Saurashtra Cement unless they can prove that a previous controversial preferential allotment, assumed valid by the Mehtas, was actually in violation of Sebi guidelines.

"We have obeyed every Sebi guideline, and therefore are not worried about any such views," said sources close to the Mehtas.

The Saurashtra Cement board has decided to preferentially allot equity linked instruments at a conversion price of Rs 30 per share to FL Smidth.

Upon conversion, this will raise FL Smidth's stake to 22 per cent and sharply reduce the Indian promoters' (along with associates) holding from 64.5 per cent to just over 29 per cent.

Industrialisation Fund for Developing Countries, a foreign institutional ally of FL Smidth, will, upon such conversion, hold 7.21 per cent, so that roughly, the Indian and foreign promoters will holdvirtually the same percentage of equity in the company.

Saurashtra Cement will seek approval of the shareholders for issue and allotment of 33.33 million equity shares and/or equity-linked instruments at a price of not less than Rs 30 per share, which will translate into an inflow of Rs 100 crore to the cash-strapped company.

Saurashtra Cement is passing through troubled times as realisations have dropped sharply in the Gujarat region, and the fresh infusion of the much-needed funds could not have come at a more appropriate time. Analysts expect the company's 1997-98 losses to mount to over Rs 20 crore, from a Rs 8 crore loss in 1996-97.

The radical change in shareholding, say analysts, may be a first step towards a total management control by the Danish major. "The Indian promoters may be on their way out, as they will possibly find it financially difficult to turnaround the ailing company," said an analyst.

Sources close to the Mehtas, however, denied any move by the Indian promoter to move out ofthe company. "Saurashtra Cement has been working closely with FL Smidth for a long time, and an increase in their holding will go a long way in strengthening the company," the sources said. "Post-allotment, small shareholders will hold over 39 per cent in the company, and the Mehtas have the support of many of them," sources added dismissing fears of a subsequent takeover by the foreign company.

FL Smidth and Industrialisation Fund at present hold a modest stake of 6.85 per cent each in the company, after a controversial preferential allotment by the Gujarat-based cement company. The allotment was contested by the Autoriders group which had made an open offer for picking up a 20 per cent in the company, and the matter is still awaiting Sebi clearance. The fresh tranche will include allotment of 11 million securities to the Danish major, and another 2.5 million to Industrialisation Fund. The company has claimed that the allotment will part-finance the company's modernisation and expansion project at Ranavabwhich will raise the production capacity by 1.1 million tonnes.

INSIGHT

For foreign firms wanting to enter the local cement industry, the move may provide a toehold on the thin edge of the wedge. Apart from that, issuing shares under Section 94 of the Companies Act is financial engineering at its best. Section 94 gives wide powers to the company to restructure its capital without requiring the approval of court, and the authorised capital of the company already includes unclassified shares.

Saurashtra Cement is the only cement company in which a global major had a stake which is being hiked to a level where special resolutions can be blocked. The preferential allotment will put an end to any hope of Autoriders, or for that matter any prospective acquirer, to acquire Saurashtra Cement. The dilution of equity is a disincentive for the shareholder as the company, despite its none-too-prudent accounting (setting off decline in investments against revaluation reserve), has so far been unable to createany shareholder value.