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Gautam Thapar may not be able to regain CG Power control

Lenders including KKR and Yes Bank have converted the pledged shares into equity.

Oct 19, 2019, 08.38 AM IST
In August, the financial services arm of KKR invoked the pledged shares and now hold less than 10%.
MUMBAI: Gautam Thapar’s efforts to wrest back control of his group company CG Power and Industrials by buying back pledged shares are likely to hit a wall.

Lenders including KKR and Yes Bank have converted the pledged shares into equity, making a share transfer impossible, said people with knowledge of the development.

Larsen & Toubro’s 10% stake, which is held in a trust, cannot be bought by Thapar because the Securities and Exchange Board of India has barred the promoter and his entities from engaging in equity transactions.

“It is simply not possible. Some lenders such as KKR and Yes Bank, which have already factored in the non-performing asset after the loan turned bad in July, have converted the pledged shares to equity, which now rests on their books. Taking it back is not possible even if the loans are repaid,” said a person with direct knowledge of the development.

Banks and financial institutions lend against pledged shares and in case of non-repayment, invoke the pledge and hold the shares in the company either through a trust or directly. In the case of Avantha Holdings, the promoters had pledged the shares of subsidiary CG Power and Industrials for a loan they took for the parent company.

In August, the financial services arm of KKR invoked the pledged shares and now hold just less than 10% in the company. In May, Yes Bank invoked certain pledges and now holds a 12.79% stake in CG Power.

Thapar did not comment.

Thapar is seeking to exercise his right to buy the pledged shares as per a 2017 internal agreement with a section of CG Power’s lenders, including private equity fund KKR & Co. and L&T Finance. Top officials close to Thapar said he is exploring all avenues to regain his shares, including approaching Sebi and the ministry of corporate affairs.

The board of directors of CG Power ousted Thapar as company chairman in August over alleged financial irregularities and fraud, accusing him of siphoning funds from the company.

A board-controlled exercise to relook at the books of accounts and get a new management is under way. The board insists that CG Power should put in place a completely new management team with no links to the Avantha group.

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