As part of the listing agreement the company has informed the Hyderabad Stock Exchange (HSE), of its intentions to explore the possibility of converting the ECB into preference shares in favour of BAT on a private placement basis. Further, VST has already obtained the shareholders approval to issue redeemable preference shares of Rs 100 each amounting to Rs 50 crore at a shareholders' meeting held on September 1998.

In 1997, VST had intended to raise funds worth Rs 75 crore through a rights issue of fully convertible debentures of Rs 135 each. Accordingly BAT had paid Rs 23.81 crore towards advance subscription money which was later converted to ECBs as FIPB had refused to accord the approval for BAT to take on the unsubscribed portion.

Considering the company is making losses inthe current year, the preference issue, according to analysts, will shore up its bottom line as VST need not pay interest on the foreign loan.

For the nine month period ended December 1998, VST had reported a net loss of Rs 1.46 crore while the interest burden on the company for the same period will be Rs 16.86 crore. Considering the positive gross profit of Rs 2.73 crore for the nine month period the preference share conversion would improve the bottom line.

BAT Plc of the United Kingdom is the single-largest shareholder in VST Industries, and it has often been speculated that the final aim of BAT in India is to consolidate its holdings in VST and the much larger giant, ITC Ltd, by finally merging them together. However, all this has come to nought because of the staunch resistance to the hike in BAT's shareholding in ITC by various sections, including the Indian professional management of ITC itself.

VST was led during a crucial post-liberalisation phase by the colourful Malcolm Fry, who was alsonon-executive representative on the ITC board of BAT Plc during an extremely controversial period.