Sources close to the development said the move to create an investment holding firm was aimed at maintaining an arm's length between the manufacturing companies and their unrelated investments in various group companies. They added that this would ensure better corporate governance.
The stakeholders, mainly the creditors, would feel more comfortable with such a structure, they said.
The boards of the three companies informed the stock exchanges on Friday that they would meet on Sunday to "consider a restructuring proposal under Section 391-394 of the Companies Act, 1956". A spokesperson of the group declined to comment.
The Rs 1,577-crore (Rs 15.77 billion) Indian Rayon had investments worth Rs 618.34 crore (Rs 6.18 billion) on face value on March 31, 2005.
A majority of this investment is in a wide range of group firms, including Idea Cellular, Birla Sunlife Insurance and Birla NGK Insulator. In addition, it has invested Rs 81 crore (Rs 810 million) in mutual funds.
Indo Gulf Fertilisers has investments worth Rs 283 crore (Rs 2.83 billion) in Aditya Birla Health Services, and in mutual funds - mainly in Birla Mutual Fund.
Birla Global Finance's investments stood at Rs 87 crore (Rs 870 million) on March 31, 2005, including Rs 72 crore (Rs 720 million) invested in Birla Assets Management Company.
The shares of Birla Global Finance went up by 46 per cent in the past month, from Rs 92.50 to Rs 139.50. The average daily volume in this period increased three-fold, from 50,000 shares to 160,000 shares.
Industry sources said in case of such a move, the shareholders of Indian Rayon and Indo Gulf Fertilisers might be given shares of Birla Global Finance.
"The companies will place the proposal to their shareholders at a general body meeting," they added.
Additional reporting by Anindita Dey & BG Shirsat