Indo Rama defaults, IFCI loan becomes equity

Indo Rama defaults, IFCI loan becomes equity
ENS ECONOMIC BUREAU

MUMBAI, MAR 26: Indo Rama Synthetics India, belonging to the OP Lohia group, is the latest to default on institutional loans, forcing Industrial Finance Corporation of India (IFCI) to convert its loan into equity.

"The board of Indo Rama Synthetics has allotted 1,02,70,000 equity shares of Rs 10 each at par as fully paid-up of an aggregate face value of Rs 10.27 crore to IFCI by way of conversion of loan into equity," the company said in a notice to the Bombay Stock Exchange. The allotment would be with effect from December 22, 2000, pursuant to IFCI exercising its option for such conversion.

As per the Companies Act, if a company defaults on FI loans, the latter can convert the loans into equity. The company's ever rising debt-equity ratio has been the major worrying factor. Debt has gone up from Rs 61 crore in 1991 to Rs 1,432 crore till the last fiscal. Equity capital is almost one-tenth of total debt at Rs 155 crore. No measures have been taken to reduce the interest cost of Rs 170.74 crore, a culprit for keeping the bottomline red. Most of the funds were borrowed for PTA project which never took off.

Moreover, the future plans of the company are also strange. It proposes to increase polyester capacity to 6 lakh tonnes by 2002 with an investment of Rs 1,500 crore. New capacity expansion will be in Karnataka. But the funds for the same have not been tied up. "One wonders where the funds will come from. The debt burden has already climbed up substantially. Equity route is also not open as the share is trading at discount to its face value," said a banker.

A Nagpur court had adjourned to April 4 a suit filed by Washington-based International Finance Corporation (IFC) against Indo-Rama Synthetics for recovery of loan to the tune of Rs 132.36 crore.

IFC filed an application before the judge to appoint a court receiver and prayed to restrain the company from disposing of its plant and machinery located at Butibori industrial estate, about 30 kms from Nagpur. IFC, a member of the World Bank group, had sanctioned $35 million loan for producing synthetic blended yarn and polyster staple fiber, way back in August 1993. The company agreed to pay interest at the rate of two and half per annum in 16 equal instalments.

Indo Rama's results for the year ended March 2000 reflect the continuing depressing trend in the man-made fibres and yarn industry in India. Though the turnover for the year has gone up by 27 per cent, it was mainly due to volume growth coming from exports.

Ispat too reschedules loan: Ispat Industries also managed to get the approval of financial institutions for reschedulement of its loans. The restructuring will involve conversion of part of the equity into preference shares. The existing equity base of the company which is Rs 692.57 crore will be written down by 50 per cent and existing shareholders would be issued 0.0001 per cent cumulative redeemable preference shares (CRPS) in lieu of the written down equity.

FIs also slashed interest rates on Ispat's loans. A major feature of the restructuring exercise will be the reduction on interest rates on all loans. The interest rates on all rupee loans and funded interest term loans, non-convertible debentures (NCD) in the company, including interest on the HR coil project, would be reduced from existing rates, which is approximately 17 per cent to 14 per cent per annum, with effect from March 1, 2001. "I hope FIs will extend such concessions to all its borrower. It should not restrict such sops to select industry groups," said a corporate source.