All about L&T corporate benefits

Stock market is an ocean. Inspite of advancements in technology and online data archives, the situation is akin to olden days when it comes to understanding the corporate benefit history. The situation is similar for in investors / share holders and brokers - both have to spend hours before they understand the real pictire. Only if each of these listed companies provide an online calculator like provision, it will be easier for these share holders to understand their real holdings.

On the other day one of the investor walked into my cabin with L&T share certificates. The certificates were issued in 1992 for Rs.10. Now the face value of stock is Rs.2. It is logical for any one to jump into conclusion that the stock could have gone in for stock split. If so, this 100 shares would have become 500 shares. Followed by 2 (1:1) bonuses and one (1:2) bonus, this client should have had 3000 shares. The client has demated some shares and sold it off - but definetely not 3000 shares. What happened to the rest. Obviously at a current market price of Rs.1000, that is huge money!

On digging the facts i found that when L&T split into 2 companies L&T egineering co and Ultratech cements in 2004, the face value has been reduced from Rs.10 to Rs.2. Hence this clients 100 L&T shares were divided into 50 shares of L&T of FV 2 and 40 shares of ultratech cement of FV 10. Below mentioned article clearly states this.

Leave alone the argument of the rationality behind the reduction in share capital, Im not sure how many clients will have access to such information or such brokers who will have patience to dig out these facts and clarify. Atleast sites like NSE india should have some sorts of calculators to assist investors/brokers. Only then the confidence would come back on Dalal Street. Institutions like SEBI should take care of such intiatives under investor protection activity.

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L&T's share cap to shrink by 90% after demerger:
TNN Jan 6, 2004, 12.22am IST

MUMBAI: Engineering giant Larsen & Toubro's paid-up share capital is set to shrink by 90% to Rs 24.8 crore, from the current level of 248.7 crore, after the demerger of its cement business.

The face value of the company's shares, as part of the capital restructuring, is being reduced from Rs 10 per share to Rs 2 per share.

The company said in a notice to shareholders that under sections 78, 100 and other applicable provisions, and subject to the sanction of the Bombay High Court, the company has sought reduction of its subscribed and paid-up capital by Rs 223.86 crore "as being no longer represented by assets of the company and such reduction being effected by reducing the face value of the equity shares of the company from Rs 10 per equity share to Re 1 per equity share".

Thus, the company's share capital will decline from Rs 248.7 crore to Rs 24.87 crore. Subsequently, 24.87 crore equity shares with face value of Re 1 will be restructured into 12.44 crore shares with face value of Rs 2. The company will undertake "the consolidation of the 24.87 crore equity shares of the company (including equity shares represented by global depository receipts) of the reduced value of Re 1 into 12.44 crore equity shares of Rs 2 each fully paid-up," L&T has said in its notice to shareholders.

As part of a three-step demerger, L&T will hive off the cement business into a separate company, Ultra Tech CemCo, where it will hold 20%. The balance 80% stake will be held by existing L&T shareholders on a proportionate basis. The share entitlement ratio for every member of L&T on the record date will be two equity shares of Rs 10 each in CemCo for every five shares of Rs 10 each fully paid-up.

In other words, a shareholder with 100 shares in L&T will, post-demerger, receive 50 shares (face value Rs 2) in the engineering company and 40 shares in the newly formed cement company with a face value of Rs 10 each.

The share exchange ratio (two cement shares for every five original shares) will create 9.6 crore new shares of the cement company with a face value of Rs 10. However, the total share capital of the demerged cement company, Ultra Tech CemCo, has been pegged at Rs 124.4 crore. The remaining part of the share capital (Rs 124.4 crore - Rs 96 crore) corresponds to the 20% to be held by L&T.

The company has convened an extraordinary general meeting of its shareholders and creditors on February 3 to seek their approval for the scheme of arrangement of the cement business. The high court has appointed company director SS Marathe as chairman of the EGM.

On the BSE, the L&T scrip fell 2.24% to Rs 525.

According to L&T CFO, YM Deosthalee: "The capital restructuring does not in anyway affect the net worth or the equity interest of shareholders. The company's equity capital is now being restructured to give the historical perspective." Added L&T CMD, AM Naik: "The reduction and consolidation of the shares with a face value of Rs 2 per share, while retaining intact the true net worth of the shares, will contribute to the improvement in the valuation of the shares in the market."