CG Power and Industrial Solutions' lenders have approved the takeover bid of the company by Murugappa Group-led Tube Investments, multiple people aware of the development told CNBC-TV18.

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"Lenders have agreed to issue the Letter of Intent (LoI) to Murugappa Group for CG Power today," said a person directly involved with he matter. He added that with no other offers on the table, banks have decided to proceed with the existing offer.

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With the Murugappa-led Tube Investment offer translating to a low recovery of under 46 percent, lenders had hoped they would get better offers through the Swiss Challenge Method, but no suitors came forward with a counter offer, said a senior banking executive with exposure to the company.

The stressed power equipment maker will now hold an Extraordinary General Meeting of shareholders on September 2 to secure their approval for transfer of shares to Tube Investments.

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On August 8, CG Power had informed exchanges of the offer received from Tube Investments. CG power said its board "considered and approved the execution of a securities subscription agreement with Tube Investments of India Limited ("Prospective Investor") dated 7 August 2020 ("SSA") for the issuance and allotment of following securities to the Prospective Investor on a preferential basis ("Preferential Allotment") inter alia subject to the fulfillment of the conditions precedent set out in the SSA."

As per the securities subscription agreement, Tube Investments would buy 64.24 billion shares at Rs 8.56 each for a total of Rs 550 crore to take a 50.62 percent stake in the company.

"There are three components to Tube Investment's offer, they are not paying everything upfront. Rs 650 crore is the cash component and about Rs 200 crore would be in the form of NCDs (non convertible debentures) and another Rs 150 crore through a property deal,” said another person involved in the matter.

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The company ran into trouble last year when its board discovered large accounting irregularities. Its chairman Gautam Thapar was subsequently forced to leave.

CG Power has a debt of around Rs 2,500 crore to an SBI-led consortium of lenders which includes ICICI Bank, Axis Bank, IDBI Bank, Corporation Bank and Canara Bank.

First Published:Aug 28, 2020 9:04 PM IST