The country's largest cement company has informed the Bombay Stock Exchange that its board will meet on December 8 to consider a preferential allotment of warrants to the "present promoter group" as well as a rights issue to fund acquisitions. A preferential allotment will increase the stake of the existing promoter group, ending months of speculation on the exact status of the giant cement corporation vis-a-vis the Tata group.

Speculation on ACC's status is more than a year old. Although the cement giant had never made a formal exit from the Tata group, former chairman Nani Palkhivala had raised a storm last year with a statement that ACC was "never a Tata company". This position of the company was clarified bythe present chairman, Pallonji Mistry, soon after replacing Palkhivala when he termed ACC as "closely associated with the Tata group".

The ACC board will also consider a proposal to sub-divide its equity share, which currently has a face value of Rs 100, into 10 shares of Rs 10 each. On Thursday, the ACC scrip closed at Rs 820 on the BSE, falling sharply from its opening quote of Rs 903.

The Tatas represent the single-largest shareholder group through two companies in ACC with around 13 per cent stake. Mistry, a close friend of the Tatas, holds another 1 per cent. Mistry also holds an 18 per cent stake in Tata Sons, the group's holding company for most of the manufacturing companies.

Indications of an operational inclusion of ACC within the Tata fold seem to be available. The Tata group, which has kicked off a major restructuring of operations, has set up business review committees headed by chairman Ratan Tata for major Tata group companies. Tata group sources said that a similar business reviewcommittee has also been set up for ACC which will plan, oversee and implement the future growth strategies of the company.

An official spokesperson of the Tata group said: "It will be inappropriate for us to comment on the exact status of ACC as a Tata group company. We cannot make any comment before December 8 when the ACC board will meet."

ACC president (finance) NH Italia did not comment on any enhanced role in future for the Tatas, but said that the funds were being mopped up to fund expansion and acquisitions.

The amount that ACC wishes to mop up through the proposed rights issue has also not been disclosed. It is being broadly speculated that the issue will fund the buyout of Tata Steel's cement division. ACC has an equity base of Rs 136.8 crore.

ACC officials said that it would be too premature to say whether the company will finally strike the deal. "There are several cement companies in the country now that are up for sale," they added.

French multinational LaFarge, sources said, has alsobeen shortlisted along with ACC. Tata Steel, it is learnt, has decided to undertake a valuation for the cement division after both bidders put in a quote far less than its expected price of around Rs 600 crore.

Analysts say that if ACC acquires the Tata Steel cement division, it will have to shell out around Rs 400 crore to Rs 450 crore for the 1.7-million tonne slag cement division.

Insight

-- market gives a thumbs down

ACC's announcement of dilution of equity has not been taken well on the bourses. The market has reacted in the same way as it has to the issue of India Cements. ACC, along with other companies in the industry, is going through tough times, and under such circumstances equity dilution is the last thing that was expected. Servicing the equity could be a problem for the company, since last year's dividend outgo was more than its profits. At the same time, the company has no option if it is to raise funds, since its debt-to-equity ratio does not admit any more leveraging. It isunclear why the company should, at this financial juncture, go in for acquisitions. Even if it does acquire companies at rock bottom prices, it will need to borrow more for running them. However, last year, interest charges amounted to 99 per cent of operating profits (excluding stock adjustments).