The institutions are believed to be studying the buy-back clause before it takes a view on Escorts' proposed scheme. Earlier, the institutions had decided to hold back their approval on the scheme after the company had got a resolution passed to this effect at their last annual general meeting. On the scheme Nanda said Escorts was offering the shareholders an option of investing in the company's shares at a later date. The company was paying back the investors their money at a better rate than the initial offer, he added.

He said as per Escorts' plan thecompany was to pay from the cash flow, the company is expecting from its divestments. ``The real cash flow is expected to start from the fiscal 1999-2000,'' Nanda said.

When asked on the promoters' decision to hike their share holding in the company, Nanda said that the promoters are planning to hike it to 51 per cent. Currently, Escorts' promoters hold 44 per cent in the company while, LIC holds 12 per cent, GIC 8 per cent and UTI 8 per cent in the company.

Further, the public holding in the company is estimated to be 21 % and 2 % is held by the FIIs. On Escorts' plans Nanda said that company is contemplating new projects and a major joint venture in the next one year.

The route that the Escorts management had proposed does a lot more for shareholder value than is being acknowledged by the FIs. Even though the scheme of substituting a portion of its equity for preference shares was thought up prior to buyback of shares being allowed, it still makes sense to go ahead with it, instead of buying itsshares back.

Substituting equity for preference shares conserves resources yet shareholder interest is served. This is important from the company's point of view as it is contemplating expansions and will require the funds then. Under the exchange scheme the equity can be restructured to show a higher EPS without any cash outflow.