Rane''s rejig enters last lap

Chennai: The Rs1,400-crore turnover auto component Rane group has initiated its final phase of group restructuring exercise that started three years back.

The boards of two listed entitites, Rane Brake Linings Limited and Rane Engine Valves Limited have decided to spin off the manufacturing operation into two companies.

As per the restructuring scheme, for every 100 shares held in these two companies, shareholders will be allotted equal number of shares in the new manufacturing companies that would be relisted.

The non-manufacturing activities, mainly investments, will be merged with Rane Holdings Limited, the group's holding company, for which shareholders of Rane Brake Linings and Rane Engine Valves would get 75 and 56 shares respectively in the thinly traded Rane Holdings. The swap ratio is based on Ernst and Young's valuation.

The restructured entity will come into effect from 1 April, 2007, once the Madras High Court gives its sanction to the scheme.

Announcing the development L Ganesh, chairman, Rane group, said, "The object is to consolidate the cross holdings in Rane Holdings and facilitate value creation for the shareholders."

The Rane group comprises of five listed companies, Rane Holdings, Rane (Madras) Limited, Rane Brake Linings, Rane Engine Valves and Kar Mobiles Limited and four unlisted companies – Rane TRW Steering Systems Ltd, Rane NSK Steering Systems Limited, Rane Investments Limited and Rane Diecast Limited.

The changing market condition and investor expectations and awareness resulted in shareholders demanding that the promoters reduce the cross holdings and not use the company's money to increase their stakes in group companies.

Elimination of cross holdings will enable investors to assess the true intrinsic value of individual companies based on their business and the market conditions. Further the companies can then try to access technology partners with a clean slate without getting into other problems at a later date, says an auto analyst who does not want to be quoted.

Ganesh expects Rane Holdings scrip to be actively traded with the addition of new shareholders post restructuring.

The latest restructuring announcement is part of the overall group restructuring process that started in 2004. "We were advised to remove cross holdings and move them to a holding company so as to unlock shareholder value," said Ganesh.

In the first leg of the restructuring, Rane Holdings was formed with the demerger of Rane (Madras), which removed the cross holdings in the latter. "The promoters moved all their investments in other group companies except in Rane (Madras) to the group holding company, said S Venkataraman, vice president, corporate services.

"We didn't go for the complete restructuring in 2004 itself as it involved high capital gain tax outgo," added Ganesh.

This March the promoters moved their holdings in Rane (Madras) to Rane Holdings thereby making it a subsidiary.

After the latest restructuring, the equity capital of Rane Holdings will increase to Rs14.5 crore from Rs9.8 crore at present. Ganesh said the promoters are not worried about reducing in their stakes to 50 per cent from 72 per cent in Rane Holdings the currently.

According to Venkataraman once the entire restructuring process as envisaged by the companies are over, Rane Holdings will hold a 54-per cent stake in Rane (Madras), 52 per cent in Rane Engine Valves, the proposed new company, 79 per cent in Rane Diecast, 43 per cent in Rane Brake Linings, another proposed company, 36 per cent in Kar Mobilies and 100 per cent in Rane Investments which in turn holds 50 per cent stakes in the two joint ventures – Rane TRW Steering Systems and Rane NSK Steering Systems.

Reacting to the slowdown in the production of commercial vehicles, two-wheelers and tractor segments, the Rane group may not proceed with a previously announced Rs250-crore expansion plan. However Ganesh said there was no change in Rane Brake Linings' and Rane Engine Valves' plans to set up new plants in Trichy. The projects are progressing as planned, he said.