Fraud-hit CG Power hires Arpwood Capital to raise equity funding

By Beena Parmar

  • 17 Mar 2020
Credit: Thinkstock

CG Power & Industrial Solutions Ltd, a distressed company backed by private equity firm KKR, has appointed Arpwood Capital Pvt. Ltd as its financial adviser to help raise equity funding.

Arpwood was hired after the company’s board agreed to work with its lenders to put in place a resolution plan as per regulatory norms, CG Power said in a stock-exchange filing.

It didn’t disclose details of the resolution plan or the amount of equity capital it plans to raise.

CG Power owed Rs 2,485.5 crore to 14 lenders including IndusInd Bank, State Bank of India, ICICI Bank, Axis Bank, Canara Bank and IDBI Bank as of March 2019, its annual report shows.

The company had plunged into turmoil in August last year when it detected a fraud by some current and former employees, resulting in the firing of chairman Gautam Thapar. A board-led investigation found that these employees pledged the company’s assets without permission, understated advances to related and unrelated parties by Rs 4,796 crore and understated total liabilities by Rs 2,661 crore.

Soon after the fraud came to light, PE firm KKR—through non-banking finance arm KKR India Financial Services Ltd—acquired a 10.01% direct stake in CG Power by invoking pledged shares.

Yes Bank had converted its debt into equity and owned a 12.79% stake in CG Power as on December 2019. L&T Finance Ltd holds 10% while billionaire Sunil Bharti Mittal-owned Bharti (SBM) Holdings Pvt. Ltd and Life Insurance Corporation of India own 8.30% and 2.25%, respectively, shows stock-exchange data as on December 2019.

Earlier this month, the National Company Law Tribunal (NCLT) allowed re-opening of books of CG Power for the past five years till March 31, 2019 on an application filed by the Ministry of Corporate Affairs.

Last week, the Securities and Exchange Board of India (SEBI) confirmed a capital market ban on Thapar and three others. The regulator also said it might examine KKR’s alleged involvement in an insider trading case pertaining to CG Power.

Established in 1937, CG Power makes transformers, switchgear, circuit breakers, network protection and control gear, and power automation products. It also offers turnkey solutions.

The company, which has ventured outside India through both organic and inorganic routes since 2005, now has factories in Belgium, Hungary, Indonesia, Ireland, France, the UK and US. It has 20 manufacturing locations in India.

CG Power’s consolidated net loss widened to Rs 210 crore for the October-December quarter of 2019 from Rs 106 crore a year earlier. Its total income declined to Rs 1,190.5 crore from Rs 2,084 crore during the period.