DCM Ltd. Goes for Restructuring to List 3 Entities

DCM Limited is currently engaged in four business segments i.e. Textile Grey, Iron Casting (Engineering), Real Estate and IT Services. The textile division is highly focused on exports and has presence across various countries which include Portugal Egypt, South Korea, Brazil, Hong Kong, China, Bangladesh, Italy, USA, and Peru. The manufacturing plant is located at Hisar, Haryana (160 Kms north of Delhi). The plant is spread over 380 acres in the close vicinity of the cotton belt of North India. With special emphasis on investment in human resources and continuous skill Upgradation, the plant is equipped with modern development Centre for people at all levels with all modern facilities including technology-based training. The plant has its own residential campus with all modern facilities including officers club with indoor and outdoor facilities for Table Tennis and Badminton.

Earlier to this Scheme, DCM Engineering Limited was merged with DCM Limited from appointed date 1st April 2014. The Scheme has become effective from 25th May 2016. The Division of Grey Casting which was earlier subsidiary of DCM Limited had stake 75.06% and remaining was held by Holding Companies (promoters) of DCM Limited i.e. Aggresar Leasing and Finance Pvt Ltd and Midopa Holdings Pvt Ltd.  Pursuant to amalgamation of DCM Engineering Limited with DCM limited the promoters were allotted 12.99 lakhs shares in DCM Limited which led to promoters holding in DCM increased from 44.70% stake to 48.54% Stake.

At holding company level Earlier to this scheme there is also amalgamation of Holdings companies i.e. Amalgamation of Betterways Finance and Leasing Private Limited, Lotte Trading and Allied Services Private Limited, Lotus Finance and Investments Private Limited and Midopa Holdings Private Limited with Aggresar Leasing and Finance Pvt Ltd and there is inter se transfer between promoters to Crescita Enterprises Pvt Ltd & PACs by way of Gift. Share has been pledge to Vistra ITCL (India Limited)

SORA (Scheme of Restructuring and Arrangement)

In year 2003, the restructuring plan was approved by Delhi High Court for the formation of focused entities for each of the business of engineering, information technology (IT), real estate and textile. According to the restructuring plan approved by the court, the Rs 90-crore IT business, DCM Data Systems, will be merged into DCM Limited and will become its core business. While DCM Limited will retain the textile business, the engineering products and real estate businesses will be hived off in separate companies and based on needs of each business invite partners.

Real Estate Business

DCM will transfer its property rights for 34 lakh sq. ft. in the Delhi real estate project to SPV known as Purearth Infrastructure Limited for a consideration of Rs 288 crore. However, Rs 62.2 crore from this amount will be used for property development. DCM will receive the payment over a period of six years and the company will have the liberty to use the proceeds for settlement of its debt as per scheme of arrangement. The Singapore Consortium, led by Thakrals, will have the majority stake in SPV while the balance 16% Stake will be held by DCM.

Now as part of the present schemes, following steps are taken

TRANSACTION I (T1)

Demerger of Textile division from DCM Limited to DCM Nouvelle Limited from appointed date 1^st January 2017 with swap ratio One Equity shares held in DCM Limited will get One equity shares in DCM Nouvelle Limited.

Please Note:

• Demerged Undertaking also includes

1. Operation of Textile Business with Land parcel admeasuring approx. 267 acres located near Mela, Ground in Hisar, Haryana office building school building residential buildings godowns, mill, etc.
2. All Patents, Trademark (Primero and Dinero) and Domain names (dcmtextiles.com)
3. Entitlement to use the brand name DCM by using appropriate suffixes, and to obtain a trademark registration for the same on a royalty-free, perpetual and irrevocable basis, under different logos for its present business or any other business which the company or any of its affiliate may undertake in future. Both the companies DCM and DCM Nouvelle will ensure that identities are distinct and differentiated clearly in the eyes of all third parties.

• Remaining Business also includes in addition to operation of Grey Iron Casting (Engineering) and Information Technology Services Business

1. Land parcel admeasuring approx. 112 acres located near Mela ground in Hisar, Haryana
2. Brand Name and Logo DCM shall remain sole property of the Demerged Company.

TRANSACTION II (T2)

1. First, Amalgamation of Tiara Investment Holdings Limited (registered in the Republic of Mauritius) with Purearth Infrastructure Limited from appointed date close of business hours on 31^st December 2016 on swap ratio, which is exactly same number of share held by Tiara in Purearth.
2. Second, Demerger of Real Estate Undertaking from DCM Limited into DCM Realty and Infrastructure Limited with appointed date 1^st January 2017 for Swap ratio of One Equity Shares of DCM Realty and Infrastructure Limited for Every One Equity Shares held in DCM Limited
3. And the last Amalgamation of Purearth Infrastructure Limited with DCM Realty and Infrastructure Limited from appointed date 1^st January 2017 but after giving effect to above parts for Swap Ratio of One Hundred Equity Shares of DCM Realty and Infrastructure Limited for Every One Hundred Twenty-Seven Equity Shares held in Purearth

Tiara Background

Tiara Investment Holdings Limited incorporated and registered in the Republic of Mauritius. Tiara has been granted an offshore certificate by the Mauritius offshore business activities authority. Tiara has obtained global business license category I (GBL-CI). Currently, it is holdings only investment in equity shares of Purearth with 50.65% stake (i.e. 5,46,00,000 Equity Shares of Rs. 10 each) and remaining.

Please Note:

• In FY ending Dec 2016, it has increased its equity share capital from 64.4 crores to 170.80 crores.
• Promoters holding in Purearth was 99.55% but pursuant to merger of Tiara into Purearth it is reduced to 96.13% and major of which is not classified as promoters is Mr. Vinod Mohan Nair holding 3.42% stake.

Formation of Purearth

Purearth was promoted by DCM Limited and its promoters with an object to undertake the business of real estate development construction and maintenance of industrial estates commercial centres, malls, residential, and multi-storied buildings and houses etc. Purearth commerce its business by acquiring bulk rights to develop and sell properties in the land owned by DCM Limited situated at Bara Hindu Rao and Kishan Ganj, Delhi with approx.66.53 acres of land.

With the Scheme of Restructuring and Arrangement (SORA) and the definitive agreements, all rights and obligations with respect to development of freehold land and leasehold land (Bara Hindu Rao and Kishan Ganj) have been vested with Purearth including the obligation towards advances received by the Company in the previous years against sale of flats on instalment payment basis. Transfer of Development rights of Freehold land and Lease land to Purearth was for total consideration of Rs. 288.20 crores.

Progress of Purearth as on date is that the construction work on Central Square Project, i.e. on Plaza 1, 2 and 3, has commenced and actual cost incurred has reached milestones to enable recognition of revenue. Completion certificates of Plazas 1 and 3 of Central Square have been received from the appropriate authority and are now operational. The jointly controlled entity had started development activities in Plaza 4 in earlier years. With regards to its residential project, the jointly controlled entity during an earlier year, entered a Joint Development Agreement (JDA) with M/s Basant Projects Limited (Unity) for joint development of the jointly controlled entity ‘s Residential Project (Park Square) at Kishan Ganj, Delhi, for which building plans have been sanctioned by the appropriate authority during the previous year. The construction work on the Park Square project has commenced during the year and has reached milestone to enable recognition of revenue.

Real Estate Division of DCM Limited

Real Estate Undertaking include all the assets and liabilities of real estate business of pertaining to Lease Hold land whether converted into freehold land other than the title as specifically excluded are major residential plot located at New Rohtak Road, Karol Bagh, New Delhi. Therefore, the Land (112 acres) remaining post demerger of textile on DCM Limited will also be transferred as part of demerged undertaking to DCM Real Estate & Infrastructure Limited

RATIONALE

• Focused Business approach and chart out independent strategies for each segment
• Opening of avenues for resizing and inorganic growth opportunities
• Providing multiple listing avenues thereby creating an opportunity for shareholders to participate in the business of choice.

FINANCIALS

Table 1: Financials of DCM Textile Division (All Figures in Rs. Lakh)

Table 2.: Financials of DCM Engg. Division (All Figures in Rs. Lacs)

FINANCIAL OF REALTY & INFRASTRUTURE

1. Tiara Investment Holdings Limited: Since there is no operation in the company its turnover is nil and has net worth of Rs. 196.22 crores as on 31^st March 2016 having mainly investments in land parcels.
2. Purearth Infrastructure Limited: It has turnover of Rs. 58.81 crores and net worth of Rs. 159.21crores
3. As per Financial of DCM Limited, Real Division Turnover is approx. 12.89 crores as on 31.03.2016 and Net worth of Rs. 29.86 crores including investment in Purearth

Since Tiara is investment holding company so its merger only leads to collapsing of present structure but whereas for amalgamation of Purearth into DCM Realty, Purearth has been value at 376.55 crores and DCM Realty at Rs. 83.07 crores including investment in Purearth of 16%.

SHAREHOLDING

Table 3: Shareholding of DCM Ltd. & DCM Nouvelle Ltd.

Table 4: Shareholding of DCM Realty & infrastructure Ltd

Please Note: Promoters will undertake to reduce their stake to 75% or below in compliance with rule 19(2) and Rule 19A of the Securities Contract (Regulations) Rules, 1957 prior to listing of its shares. There change in control of DCM Realty and Infrastructure Limited through this scheme of arrangement.

CONCLUSION

DCM Group has executed various restructuring schemes in last 15 years. In 2003 its hived off Engineering and Real Estate divisions into in various entities with exit plans to service its huge debt. It also consolidated its textile and Information Technology business in listed entity. In 2014 it consolidated engineering business with DCM Limited with information technology. Now the company is proposing to hive off Textile, Engineering and Real Estate business into three listed entities through separate schemes. Real Estate company will be Jointly operated by the promoters of DCM, Singapore-based Khattar, and Thakrals Group. So, whether this recent restructuring exercise will improve the prospects of the business and of public shareholders who has seen their value deteriorating year after year remains to be seen.