Escorts may offload stake in ailing NBFC subsidiary
Escorts Finance is scouting for a buyer, a complete takeover or to sell a strategic stake. According to sources in the financial services space, the non-banking financial company (NBFC) is looking at both financial institutions and private equity ...
By Amanpreet Singh & Bhanu Pande, TNN |
NEW DELHI: Escorts Finance is scouting for a buyer, a complete takeover or to sell a strategic stake. According to sources in the financial services space, the non-banking financial company (NBFC) is looking at both financial institutions and private equity players.
The NBFC, which was delisted late last year, currently has a scheme of amalgamation pending in court. Sources point to a circuitous route that the deal could take, with Escorts Finance either merging with another profitable Escorts division or a third party. Escorts own 83% stake in the company.
Currently, a scheme of reconstruction is being implemented as per which the finance company is doing a clean-up job, offering a settlement to its deposit holders in the form of Escorts equity.
According to sources, the loss-making Escorts Finance could be merged with a profitable the Escorts division for a higher value realisation or sold as it is. Escorts Finance’s losses stood at Rs 270 crore in ‘05-06 as against an operating income of a meagre Rs 27 crore.
When contacted, Escorts chairman Rajan Nanda denied Escorts Finance was on the block and refused to divulge the details of the scheme of amalgamation. “We have a scheme of amalgamation pending in court. There’s no move to put it (the company) on the block, but we are offering a settlement to our deposit holders,” he said.
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Experts said an asset reconstruction of the sort taking place in Escorts Finance usually happens when a company wants to present a clean balance sheet to interested buyers. “An amalgamation can help raise the valuation of the company while looking at prospective buyers,” says Delhi-based legal firm Titus & Co’s founder Diljeet Titus.
One of the earlier examples of a merger of this kind was the consolidation of Ceat’s rubber business, wherein RPG Group’s Ceat transferred its investment portfolio to Meteoric Industrial Finance Company (MIFL), an NBFC subsidiary of Ceat. Post-deal, MIFL ceased to be a subsidiary of Ceat.
“Merging two service businesses can be tricky, but merging the Escorts Finance business with their profitable manufacturing division can lead to a huge tax advantage,” says a leading tax expert.
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Escorts Finance was incorporated in 1987 and is a NBFC. It is primarily engaged in hire purchase, lease financing, money market operations and merchant banking. It is a member of the Escorts Group, which has interests in a number of high-growth industries, including farm machinery, two wheelers, construction and material handling equipment, auto-ancillary products and financial services.
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