In a rare instance of lenders ousting the promoter-chairman of a company even before it has defaulted, the board of Usha Martin Ltd on Tuesday removed Prashant Jhawar as non-executive chairman, after eight directors reached a conclusion that his interests were not “aligned” with that of the wire-rope maker.
At stake is future of the company’s wire rope business, the sale of which could generate at least Rs2,500 crore in cash. The firm has around Rs5,500 crore of bank loans that have not turned sticky yet, but are facing stress because of years of losses.
The resolution to remove the chairman was moved at the requisition of Venkatachalam Ramakrishna Iyer, the nominee director of State Bank of India (SBI), one of the biggest lenders to the company, said Debanjan Mandal, partner, Fox and Mandal, representing Usha Martin. Jhawar’s removal had nothing to do with the differences within the promoter group, he added.
SBI refused to comment for this story.
Jhawar, who is based in London and continues to be a non-executive director, issued a statement saying that he was “improperly removed” as the chairman and that the board meeting was held “without compliance with applicable corporate governance and secretarial standards”.
He and his father, B.K. Jhawar, who is chairman (emeritus) of Usha Martin, did not attend Tuesday’s board meeting.
In a phone interview, Prashant Jhawar said he had distanced himself from the day-to-day operations of the company 17 years ago, and that he had nothing to do with the declining performance of Usha Martin over the past 5-6 years. He said he had been regularly questioning the management about it.
The company, which is one of the biggest producers of wire rope, is currently run by his cousin, Rajeev Jhawar, who is the managing director. Rajeev Jhawar abstained from voting on the resolution to remove his cousin, said a person who attended the board meeting.
The two cousins together own around 51% of Usha Martin, which in fiscal 2016 clocked Rs4,148 crore in revenue, down from Rs4,561 crore in the previous year. It has been making losses for years: in fiscal 2016, it made a net loss of Rs413.6 crore as against Rs251.4 crore in the previous year.
Nine directors attended Tuesday’s board meeting, which was called to take “corrective steps”. Eight of them voted in favour of the resolution to remove Prashant Jhawar as non-executive chairman, a company executive familiar with the happenings at the meeting added, asking not to be identified.
The ousted chairman, however, said in his statement that he was removed in a manner which was “legally (and) ethically incorrect”.
The board appointed G.N. Bajpai, a former chairman of Life Insurance Corp. of India and Securities and Exchange Board of India, as the new non-executive chairman.
The standoff between the lenders and Prashant Jhawar started last year after differences arose over pledging 13% of the company’s shares held by him. Prashant Jhawar said he declined to certain conditions of the pledge agreement because he was not in control of day-to-day operations.
However, lenders took “serious exception” and reached a conclusion that Prashant Jhawar’s interests were inimical to the recovery of the company’s Rs5,500 crore of interest-bearing liabilities.
The dispute escalated when Prashant Jhawar opposed the company’s decision to appoint Royal Bank of Canada as the investment banker to find a buyer for its prized wire-rope division, according to the executive cited above.
He hadn’t previously opposed a “non-binding bid” to take over the unit for around Rs1,300-1,400 crore, this person added.
After consultation with the investment banker, the board is of the view that the sale of the wire rope division can generate at least Rs2,500 crore in cash. Lenders are not rushing to sell the unit because they are convinced about its intrinsic value and the fact that there will be no impairment even if the sale takes time, according to the executive.