BCCL was set up as a joint venture between the Aditya Birla group and the Bihar State Industrial Development Corporation (BSIDC) to cater to Hindalco’s caustic requirement. While the Bihar government held a majority stake of 26% through BSIDC, Hindalco held a 10% stake.

Almost 75% of BCCL’s total production is supplied to Hindalco and Indian Aluminium. Its production facility in Jharkhand has an installed capacity of 51,000 tonnes per annum (tpa) of caustic soda, liquid chlorine (39,600 tpa) and hydrochloric acid (29,000 tpa).

The takeover issue dates back to 2001, when Hindalco acquired an additional 10% stake in BCCL from group company Grasim Industries to consolidate investment in BCCL. Grasim transferred 7.8 lakh shares of BCCL to Hindalco at Rs 13 per share, aggregating Rs one crore, which raised its stake to 20%. Pilani Investments held a 5% stake, while BSIDC continued to hold 26%.

Subsequently, BCCL came out with a Rs 15.6-crore rights issue in February 2003, comprising 1.56 lakh equity shares of Rs 10 each in the ratio of 2:1 to part-finance a 30-MW coal-based captive thermal power project in Jharkhand and to pay out its liabilities. Hindalco subscribed to 44% of the rights issue, which also included the unsubscribed portion belonging to BSIDC, the joint promoter of BCCL. Renuka Investment & Company, Hindalco’s 100% arm, acquired 3.3% stake, while Pilani Investments also acquired some stake. The issue, thus, raised Hindalco’s total stake in BCCL to 54.6%, while BSIDC’s holding dipped to 8.67%, from 26%, post-rights issue.

As Hindalco’s acquisition of stake in the rights issued led to a change in control in BCCL, it triggered Regulation 11(1) of the Takeover Code and made a 20% open offer to BCCL shareholders mandatory. However, Hindalco appealed to Sebi for an exemption, stating that the stake acquisition has not led to any change in management control.

However, Sebi contended that as BSIDC did not subscribe to the rights issue, the financial institution’s shareholding fell below 26% and it lost the right to nominate a chairman and director. As a result, the acquirers, Hindalco and Pilani, were in a position to acquire management control in BCCL by nominating their own directors. Consequently, an open offer was required.

Promoters can obtain an exemption from an open offer in two cases. One, if there is no change in management control of the company, and, two, if there is an inter-promoter transfer of shares under regulation 3(10)(e) of the Takeover Code. Sebi’s argument is that as the inter-promoter transfer of shares, when one of the promoters renounced its rights in favour of another, resulted in change in the ownership pattern.As such, Hindalco should have called an annual general meeting of shareholders to determine whether there is change in management control.

Hindalco and Pilani Investments have been told by Sebi to make an open offer to BCCL shareholders, taking 18 June 2002 as the reference date for the calculation of the open offer price, as that was the day when BCCL filed with Sebi for a rights issue. Besides, it has also asked the promoters to offer the shareholders a 10% interest for the delay in coming out with an open offer. The interest is to be payable from 21 October 2002 till the date of actual payment of consideration. Sebi has given Hindalco a 45-day timeframe to make the public announcement for the open offer.

BCCL has been doing financially well in the past few years. Its net losses of Rs 9.95 crore and Rs 4.47 crore in FY 2000 and FY 2001, respectively, turned into a net profit of Rs 3.93 crore in FY 2002. In the next two fiscal years, the company realised a net profit of Rs 7.51 crore and Rs 8.63 crore. Net sales in FY 2004 rose 19% at Rs 93.37 crore, from Rs 78.38 crore in FY 2002.

BCCL attributes the improvement in performance to four factors: better realisation on products, enhanced production across chemicals, cost optimisation on all fronts and excellent customer service coupled with innovative restructuring of debt. In July last year, it expanded its caustic soda capacity from 150 tonnes per day (tpd) to 225 tpd by converting its mercury technology into membrane technology costing Rs 110 crore. The company has lined up ambitious Rs 300-crore capex project.

Despite all this, the high power tariff and the non-availability of adequate power in Jharkhand is a drag on the company’s profitability. As power constitutes almost 62% of its total expenses, the ongoing coal-based power project, situated close to its caustic soda plant in Jharkhand, will come as a welcome relief.