M&A Critique

Anant Raj Group Restructuring: Inconspicuous Scheme

Anant Raj Limited (ARL), established in 1969, is into a field of real estate development armed with one of the largest land banks in the National Capital Region (NCR), the company is in the process of building an array of Special Economic Zones (SEZs), IT Parks, Hotels, Commercial Complexes, Malls, Residential / Service Apartment and other infrastructure projects.

Anant Raj Agencies Private Limited (ARAPL) is mainly holding a stake in ARL (34.40%) and also in the business of real estate. Taurus Promoters and Developers Private Limited (TPDPL) is engaged in real estate business and is a wholly-owned subsidiary of ARAPL.

Transaction overview

The unlocking value for shareholders and elimination of investment layer will be done through three steps: –

  1. Demerger of Real Estate Division of ARAPL into TPDPL.
  2. Amalgamation of remaining ARAPL (Post- Demerger primarily holding a stake in ARL) with ARL.
  3. Demerger of Project Division of ARL into Anant Raj Global Limited (ARGL) and subsequent listing of ARGL.

The board of directors of the company approved the Composite Scheme of Arrangement between ARL the listed company, ARAPL & TPDPL, the Promoter group companies and ARGL formed for the purpose of the arrangement as a wholly-owned subsidiary of ARL.

Appointed date for the transaction is 1st April 2016.

Unlocking Value and eliminating investment layer is to be done in 3 steps.

“Real Estate Division” of ARAPL mainly consists of everything except investment in ARL. The Remaining undertaking will include only 10,14,19,725 equity shares of ARL held by ARAPL. In addition to it, ARAPL has recently purchased 97,145 equity shares of ARL, which will also form part of the remaining undertaking. The said remaining undertaking will get merge with ARL.

“Project Division” of ARL mainly comprises of

  • Hospitality projects comprising of few hotels located New Delhi, Motel at Shimla,
  • Commercial projects like Mall in New Delhi & Gurgaon, and knowledge park at Greater Noida and
  • Few residential in New Delhi and Gurgaon and some other projects.

Part of hospitality, Commercial and Residential projects will continue to stay with the ARL.


  • To eliminate a layer of promoter investment company.
  • To streamline the promoter holding structure of ARL.
  • The demerger of project division will likely to lead to focused management.
  • It gives shareholders the ability to continue to remain invested in both or either of the two companies i.e. ARL and ARGL.
  • Demerger will unlock value for shareholders.


  1. In course of merger of ARAPL into ARL, the shares held by ARAPL will get cancelled and ARL will issue equity shares to the shareholders of ARAPL. 562 equity shares of ARL will be issued for every 1 share held in ARAL. (the swap ratio so arrived so that no additional shares will be issued to the promoters)
  2. For the demerger of project division of ARL into ARGL, ARGL will issue 1 equity shares of ARGL for every 1 equity share held in ARL. Upon demerger, investment of ARL into ARGL will stand cancelled.

Pre & Post transaction Shareholding pattern of ARL

There will be no change in the total promoters holding in ARL due to restructuring. However, out of 63.47% promoter’s stake, currently, 34.40% is held through ARAPL. The Restructuring will result in the direct holding of promoters in ARL. Further, post-restructuring, the shareholding pattern of ARGL will also be similar to the shareholding pattern of ARL.

Accounting Treatment

For Step I

ARAPL: The difference between the values of assets and liabilities to be adjusted against the capital reserve.

If any of the approval and sanctions under the scheme are not obtained or completed, the whole scheme shall stand revoked and cancelled.

TPDPL: Any excess amount of payment over net assets & cancellation of investment of ARAPL into TPDPL shall be treated as goodwill and payment is lower than the net assets & cancellation of investment of ARAPL into TPDPL then shall be credited to the General Reserve.

As a result of this, ARAPL will debit its Capital Reserve by INR 75.32 crores and TPDPL will credit its General Reserve by INR 73.52 crores.

For Step II

ARL: Net Balance (After accounting for merger & cancellation of investment & equity share capital) to be adjusted against the General Reserve.

There will be no effect on the General Reserve.

For Step III

ARL:  Difference between the values of assets & liabilities of project division shall be appropriated against a balance of the Security Premium Account. Cancellation of Investment in ARGL will be written back against a balance of the General Reserve.

ARGL:  Any excess amount of payment over net shall be treated as goodwill and payment lower than the net assets shall be treated as the General Reserve.

As a result of this, ARL will debit its the Security Premium Account and the General Reserve by INR 1731 crores & INR 5 lacs and TPDPL will credit its General Reserve by INR 16.71 crores.


Table 1: Standalone Financials of ARL (All Figures in INR Crores)

Particulars Total Project Division Remaining
Fixed Assets 2,190 899 1,291
Non-Current Investment 534 133 401
Other Non-Current Assets 896 504 392
Current Assets 2,285 773 1,512
Current Liabilities 932 361 571
Non-Current Liabilities 893 217 676
Net worth 4,080 1,731 2,349

From Table 1, approximately 42.42% net worth belongs to the project division. No segment-wise revenue provided by the company. Further the results submitted to SEBI/Stock exchanges, the company has said that it operates in a single segment “Construction & Development Business”. Table 2 shows the consolidated financial position of the company.

Table 2: Consolidated Financials of ARL & ARAPL (All figures in INR Crores)

Particulars FY 16 FY 15
Revenue 477 491
EBIT % 27% 46%
PAT % 13% 29%
Borrowings 1,106 961
Capital Employed 5,294 5,095
RoCE 2.4% 4.5%
RoNW 1.5% 3.4%
Interest Coverage Ratio 3.3 4.1


From the shareholder’s point of view, this complex restructuring doesn’t seem to be splashy. Promoters Keeping a separate privately owned real estate company is not a great idea from the view of corporate governance and transparency to the public shareholders. Further merging private companies restructuring exercise with the listed entity restructuring exercise is a hare-brained decision. Probably merging whole ARAPL into ARL could have created more value. Why should the scheme provide for the cost of private restructuring to be borne by the public shareholders?

Scheme also envisage that in event any of the approval and sanctions under the scheme are not obtained or completed, the whole scheme shall stand revoked and cancelled. So even public shareholders will not be able to go through the scheme, if for any reason the part of the scheme which relates to exclusively to promoters is not approved by any government authority.

Please feel free to share/retweet the article and as always you can write down in the comment box below for anything related to the article. We would love to answer.

Aniruddha Jain