HCC acquires 66% stake in Karl Steiner for 35m swiss francs

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Will not be able to file Lavasa IPO DRHP this fiscal: HCC ALSO READ See latest News about Hind Constr See previous management interviews See what other Experts & Brokerages are saying about Hind Constr Nifty BSE | NSE 31/05/12 Are Mutual Funds betting on Nifty?

Hindustan Construction Company Ltd (HCC) board has approved acquisition of a controlling stake in Karl Steiner AG, the second largest operator in the Swiss Real Estate market. The company will acquire 66% stake by issuing new shares for a 35 million swiss francs.

In an exclusive interview with CNBC-TV18, Praveen Sood, Chief Financial Officer of HCC, spoke about the company and the latest developments.

Here is a verbatim transcript of the interview. Also watch the accompanying video.

Q: Give us a clarification-we did hear Ajit Gulabchand say that you will be paying 35 million swiss francs for that 66% stake, how do they account for it, do they sell existing shares to you or will they print new shares and give it to you?

A: They would be issuing new shares to us. So in broader sense whatever money we are investing to acquire 66% stake will remain with us in the company.

Q: In which case as and when you seek to acquire the entire company, you could be paying much more than this?

A: We have agreed to a certain parameter when they will sell the entire company to us in the next three-four years. At that point of time, we would be required to pay the amount directly to the existing shareholders to buy them out.

Q: Can you confirm the revenues of Karl Steiner, is it 700 million swiss francs-is that the number that we are looking at?

A: In the year 2009, they have the revenues of over 700 million swiss francs, which is roughly about Rs 3,000 crore.

Q: So that is really cheap because if you are paying 35 million swiss francs for 66% that is about 50 million for the entire company. So is this company coming with a lot of debt on its balance sheet, can you take us through the debt levels and also if the company is making profits?

A: At this stage there are two things. This company is a private company held privately and the deal is not yet done. We have just got the board approval to sign this deal and hopefully we should be signing this by tomorrow. So at this stage we cannot reveal so much of details but let me assure you that the company doesn't have a large debt or something like that.

Q: In that case does it operate on very low margins or is loss-making because what I am trying to understand is that is just about 0.2 times sales that we are looking at or even lower than that, so what could be the reason that you are getting these assets for 35 million swiss francs when the sales are 700 million swiss francs?

A: You will have to wait for just few days and I think we can give details about the numbers of the company which we are taking over. But let me assure you that because of economic downturn which is in the Europe and most of the other companies in Europe-that is why we have been acquiring this company at a very attractive price.

Especially we have gone for this company because it clearly for us is a very synergic fit and I think it will add to our portfolio in a big way because we feel that real estate sector in the construction side, there is a big market going to happen in India close to about Rs 60,000 crore which would be open to us and also it will give us some headway to bid for the projects in the other parts of the world especially the Middle East, Europe and maybe any other developing market.

Q: What will be the percentage share you will hold in the company post the new shares that they give you?

A: 66%-we are acquiring new shares and with the new shares we would be holding 66% stake post putting this money.

Q: You just mentioned about economic downturn and the impact on that company, are you saying that we should not look at this 700 million swiss francs figure going forward that would be much lower than that?

A: I am not saying that but whatever inference you have taken I don't think that is correct.

Q: Overall for 2010 or 2011 is it EPS accretive?

A: I think we would be acquiring the company in the year 2010-2011 and I think our consolidated results will basically include the accounts of this company.

Q: What is your current debt on HCC itself and what is the cash in hand?

A: We have got close to about Rs 2,500 crore worth of a debt in the HCC as on date and we have got cash balance of roughly about Rs 150 crore in our books of accounts.