'Once economic normalcy returns, will have favourable view of rewarding shareholders'

Larsen & Toubro (L&T), India's leading engineering, technology, construction and financial services conglomerate recently announced the closure of the strategic divestment of its Electrical & Automation (L&T E&A) business to Schneider Electric, a global player in energy management and automation for Rs 14,000 crore.

The divestment is in line with L&T's stated goal of unlocking value for future growth. In an interview with IANS, S.N. Subrahmanyan, CEO & MD, Larsen & Toubro talked about the transaction. He said the sale proceeds will be utilized partly for de-levering the consolidated debt levels in L&T's balance sheet and also to strengthen the liquidity buffer warranted by the current economic environment.

"We are in the middle of an unprecedented pandemic which has caused considerable uncertainty to business during the past 5 months. In such times, it is necessary to strengthen the balance sheet and stay adequately liquid", he added. On distribution to shareholders, L&T CEO & MD said that once clarity emerges about the duration and the impact of the pandemic, assessment of surplus cash and its potential distribution to shareholders will be made.

"Once the economic environment returns to normalcy and the core businesses of L&T start generating cash on a consistent basis, we will have a favorable view of rewarding shareholders in the most tax efficient manner", Subrahmanyan said. On which other non-core assets will be on the block, Subrahmanyan said, "We keep conducting a strategic review of our business portfolio from time to time and take a call on the basis of consistent long-term planning process. As per this review, we may divest or dilute certain concession businesses of L&T such as L&T Metro (Hyderabad) and Nabha Power Ltd as and when the economic situation normalizes", he added.

Q) What will you do with the proceeds of the deal?

A) We are in the middle of an unprecedented pandemic which has caused considerable uncertainty to business during the past 5 months. In such times, it is necessary to strengthen the balance sheet and stay adequately liquid. Accordingly, the sale proceeds will be utilised partly for de-levering the consolidated debt levels in L&T's balance sheet and also to strengthen the liquidity buffer warranted by the current economic environment. As business conditions improve post Covid, some of the equity unlocked by the divestment will also be invested for growing the business at the group level. Once clarity emerges about the duration and the impact of the pandemic, assessment of surplus cash and its potential distribution to shareholders will be made.

Q) Will you revive your buyback offer to reward L&T shareholders or will you consider a special dividend?

A) As explained earlier, it will be prudent to have a sizable cash buffer during such periods of Black Swan uncertainty. Once the economic environment returns to normalcy and the core businesses of L&T start generating cash on a consistent basis, we will have a favourable view of rewarding shareholders in the most tax efficient manner.

Q) Which is the next set of non-core assets on the block?

A) We keep conducting a strategic review of our business portfolio from time to time and take a call on the basis of a consistent long-term planning process. As per this review, we may divest or dilute certain concession businesses of L&T such as L&T Metro (Hyderabad) and Nabha Power Ltd as and when the economic situation normalises.

Q) How many employees are going to Schneider? Does that mean all employees are transferred?

A) Yes almost, all employees of L&T Electrical & Automation around 5,000 of them are transferred to Schneider Electric.

Q) Did employees gain anything at all in this transaction?

A) This deal augurs well for the employees of L&T E&A as all employees are being transferred under the same or better terms. Also, they will now be part of a global major in the electrical and automation segment, unlike in L&T where they were a part of a group that is largely focused on EPC projects and services. This makes them partners in the core business segment of Schneider Electric. They are also likely to get good opportunities to utilise their talent in growing the business..