K K Birla group's heavy engineering and steel foundry unit, Texmaco Ltd, is re-organising its business and transferring its core engineering business to a subsidiary company. The company plans to raise Rs200 crore for the proposed subsidiary by selling part of its stake in the proposed new entity to private investors.

The company has appointed Ernst & Young to advise it on its the business restructuring which is likely to be over by March 2009. It has also appointed ICICI Securities as its merchant banker to assist it in the process and raise finances for the unit.

Texmaco is likely to sell between 10 per cent and 15 per cent of its stake in the new subsidiary through private placement to private equity funds as it demerges all heavy engineering functions and divisions including the foundry.

It will then become the holding company and retain the real estate, the investment arm and Neora Hydel project in north Bengal. The company is planning to change its memorandum of association for undertaking hydel projects.

At its annual general meeting, executive vice chairman Saroj Poddar, said, ''We will demerge all heavy engineering functions and divisions including the foundry from Texmaco to take on new opportunities in the infrastructure sector,'' She also said, Texmaco will become the holding company and it will retain only the real estate and investment divisions and a final decision on the raising of resources would be taken within 2-3mths.

Texmaco  recently signed a memorandum of understanding to enter into an equal joint venture with  Australia's largest rail technology solutions provider, the United Group. The joint venture company, expected to be operational towards the end of FY09  will manufacture modern rail coaches and wagons and at an estimated investment of $50 million.

The Rs900 crore Texmaco's engineering division, which operates the foundry, is the mainstay of the company and makes railway frreight wagons, hydro mechanical equipment and agro machinery.

The company, which plans to double it's wagon manufacturing capacity from 20 wagons per day to 40 by September 2009, expects the proposed new subsidiary to get a better valuation for its wagon-making, process-engineering and foundry businesses

The new demerged entity is not likely to be listed on the bourses immediately.