New Delhi, Nov 26: For Insilco Ltd, it may turn out to be a case of a reverse acquisition. This is because close on the heels of the company acquiring MTZ (I) Ltd's silica plant, the latter is learnt to be in talks with Degussa-Huls AG (the German promoters) to buy around five per cent stake in Insilco. Market sources say MTZ, formerly known as Metazinc (India), has struck a deal with Degussa to acquire close to 25 lakh shares at a price which is much lower than the market price of the stock. At present, Insilco quotes at Rs 62 on the Bombay Stock Exchange.Post-acquisition, MTZ would hold around 5 per cent of Insilco's total paid-up capital of Rs 50 crore. However, the details of the share purchase agreement between Degussa and MTZ are not yet known. The acquisition can either be via a private placement or a renunciation by Degussa of a portion of its rights in favour of MTZ. Although the price of the share purchase is not known, market sources say MTZ could end up shelling out anything between Rs 7-14 crore for acquiring around 5 per cent in Insilco. On the other hand, Insilco paid Rs 25-26 crore for acquiring MTZ's silica unit.
Interestingly, Insilco is tapping its shareholders with a partly convertible debenture issue to finance the acquisition of MTZ's silica manufacturing unit at Patalganga. The Rs 30-crore rights issue, in the ratio of 6 PCDs for every 250 equity shares held, will also finance the capacity expansion of the unit from the 6000 tpa to 9000 tpa. Apart from the 40 per cent convertible portion, there is a 60 per cent `khokha' or non-convertible portion.
Post-conversion, Insilco's equity capital will go up to Rs 62 crore. Each PCD has a face value of Rs 250, of which Rs 100 will be convertible into 10 equity shares at par after three years of allotment. The remaining Rs 150, will be redeemed in three installments at the end of 11th, 12th and 13th year.
After the acquisition of MTZ's unit, Insilco has become the largest producer of silica in the country. Post-acquisition, Insilco's total capacity has gone up from 15,000 tpa to 21,000 tpa, which will go up further to 24,000 tpa once the capacity of the newly acquired plant is enhanced. According to sources in the market, the acquisition will help Insilco meet the growing requirement of silica in the export as well as domestic market. It will also help bring down Insilco's operating expenses by lowering the transportation cost. With most of the raw materials coming from Gujarat, coupled with the Patalganga unit's locational advantage (proximity to the port), Insilco hopes to reap a major benefit from this deal.
While the lower-than-market price deal may tend to depress the sentiments at the Insilco counter, with advantages of the MTZ unit buy-out raking in some mega bucks for the company, the outlook should remain bullish.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.