ILandFS Financial to take over Maytas Infra

The ILandFS group will take control of infrastructure firm Maytas Infra in line with a Company Law Board directive on Monday. The CLB, based on a Maytas application, has instructed the company to induct ILandFS Financial Services as a promoter and allow it to assume management control, Maytas said in a statement.

"There has been a consensus amongst the stakeholders to change the existing promoter of the company so as to restore the credibility of the company and to bring in necessary funds in the company," Maytas said in a statement.

ILandFS would have a stake of 37.1% in Maytas Infra-originally promoted by Ramalinga Raju and now under government supervision-and will pump in Rs 55 crore to revive the firm, which lost several contracts after Raju's confession about the accounting fraud in Satyam Computer Services (SATYAM.BO : 90.55 -2.2), now Mahindra Satyam. ILandFS has also been allowed to appoint four directors, including the chairman. Teja Raju, son of Ramalinga Raju, who's the promoter-director, will step down along with another director B Narasimha Rao.

The news lifted the Maytas shares, which hit the upper circuit of 4.98% at Rs 112.80 on the BSE (^BSESN : 16632.01 -222.92) on a day when the Sensex was down 255.70. ILandFS rose 0.04% to close at Rs 271.90.

ILandFS, which holds 14.5% shares directly in Maytas, has been allowed to foreclose its rights on 22.6% pledged shares, which would take its total holding to 37.1%. The company will have to make an open offer later to meet the Securities and Exchange Board of India's takeover norms. Further, ILandFS would have to hold at least 26% stake in Maytas for two years along with the management control.

When ILandFS inducts more directors, the government will recall two of its nominees on the Maytas board but the remaining two will continue, said Salman Khurshid, minister for corporate affairs.

Earlier this year, following a CLB order, the government had appointed four nominee directors on the Maytas board-K Ramalingam, Ved Jain, OP Vaish and Anil K Agarwal-to revive the company. On Monday, it key lenders-ICICI Bank (ICICIBANK.NS : 850.9 -14.6), IDBI Bank (IDBIBANK.NS : 0 0) and State Bank of India (SBIN.NS : 2242.9 -11.75)-invited ILandFS to take a strategic role in Maytas to help in its revival, an ILandFS statement said.

"The collateral damage from the Satyam episode has affected Maytas Infra as the entire banking arrangement of the company were frozen, customer contracts cancelled and relationship with vendors, joint venture partners comes to a standstill," ILandFS promoted by Central Bank of India, HDFC Ltd and Unit Trust of India added in the statement.

Maytas lost the Hyderabad metro rail project worth Rs 15,000 crore after the Satyam scandal. Maytas shares have lost about a third since the scandal broke.

But analysts were not as enthused by the news or the share price jump on Monday. The new management will take time to show results despite the possibility of fresh funds and the group's construction experience, they said.

"I don't think (Maytas') profitability will improve because a lot of projects are stalled and a lot of employees have also left. There will also be a lot of penalties from the clients' side because of delays," said an analyst who declined to be named.