CG Power: Tube Investments at the helm

By Shriram Subramanian

On November 26, 2020, CG Power got an entirely new set of Directors and the previous Board members all resigned. Tube Investments, holding 58.58 per cent shareholding after infusing fresh capital has taken charge of CG Power. CG Power is a leader in industrial and power equipment such as motors, transformers, and switchgear. Tube Investments is part of the Murugappa group with diverse business interests. CG Power had on November 21 announced a debt restructuring plan where lenders had agreed to a deferred payment schedule and a sale of non-core assets, including the CG House in Worli, Mumbai.

This transition marked an end to a dark chapter in the history of CG Power where it underwent financial stress and was buffeted by a battle for corporate control. In 2019, after a forensic audit by Vaish Associates, there were allegations of financial siphoning of funds from the company by the then promoter group, the Avantha group, and the Gautam Thapar resigned from the Board as the Chairman. Avantha group alleges that the Vaish Associates report did not have any legitimacy as it was commissioned by the company and not an independent analysis.

In February 2020, InGovern Research had observed: “A board room battle and a battle for control of the company has meant that minority shareholders at CG Power are wondering what are the events that lead to the current state of affairs where there has been large destruction of shareholder wealth. The roles of various stakeholders - the Board, key management personnel, internal auditors, bankers to the company, lenders to holding company, statutory auditors, promoters and other group companies - needs to be examined.”

NCLT also mentioned about corporate war and questioned the self-declaration by CG regarding irregularities purported to have been committed. SEBI asked the BSE to appoint an independent forensic auditor. The Forensic Audit Report which was submitted to SEBI in March 2020 and the observations made by the NCLT, confirm that all stakeholders – the Board, Directors, KMP, Banks, NBFCs – had full knowledge of the transactions with promoter group entities. The default on the loans availed by the holding company of the erstwhile promoters triggered these series of events that led to change in control of management, changes in the constitution of board, and acquisition of shares by KKR, YES Bank and others.

SEBI passed its confirmatory order on March 11, 2020. Its findings were critical of Gautam Thapar and other management of CG Power and restrained Gautam Thapar and others from accessing the securities markets. The order also noted that there was against KKR, a private equity firm, which held 8.10 percentage of the shares in the Company, with respect to market manipulation, insider trading and change in control of the company. Most analysts expected KKR to take control of CG Power by increasing its shareholding and turnaround the company before exiting.

Post this transition, shareholders of CG Power and Tube Investments will hope that the company will soon be back to its glory days.

(The writer is the Founder and Managing Director of InGovern Research Services - a proxy advisory firm)