Bangalore: Public sector undertaking ITI Ltd (formerly known as Indian Telephone Industries Ltd), which has not been profitable since 2001, is seeking a new Rs2,000 crore government bailout.
The funds are being sought to wipe out accumulated losses of Rs2,225 crore and to obtain working capital for telecom equipment manufacturing. According to a company official who did not wish to be named, a committee has been set up by the Centre to finalize the package.
Any “delay in the approval of the revival package will affect our ongoing projects. We have orders worth Rs2,800 crore on hand, but insufficient working capital,” claimed the ITI official. The loss making company has set a sales target of Rs4,770 crore for 2007-08, which is 150% more than what it sold last year. But through September, ITI has achieved sales of just Rs800 crore.
The new bailout demand comes just three years after the Union government gave Rs1,025 crore in financial aid to ITI. The government had infused Rs200 crore in equity, Rs458 crore for a voluntary retirement scheme, Rs50 crore for capital expenditure, Rs93 crore to clear provident fund dues, and the rest as working capital.
ITI’s losses are at Rs405 crore on sales of Rs1,818 during 2006-07, when it contributed Rs153 crore toward duties and taxes. According to the company’s auditors, ITI’s network had completely eroded by March due to the losses.
The official claimed the new bailout would help make ITI independent of projects from public sector telecom operators, Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL), which account for more than 80% of ITI’s total orders.
Prithipal Singh, former chairman and managing director of BSNL, says ITI has been surviving only on BSNL and MTNL work. “ITI has been unable to get significant orders from the private players. No financial package will help ITI unless they build their own strength to survive independently,” he added.
Commenting on earlier attempts by the government to help revive ITI, Singh said: “The aid could’ve been leveraged better. It worked well only in short-term revival, but not in the long run. Unless the new financial aid comes attached with conditions on how it is utilized, I am afraid this, too, may go up in smoke.”
ITI is executing a Rs328 crore order for 2.1 million lines of wireless local loop. It also has to complete an order for five million lines of GSM from BSNL. However, the same ITI official complained that debtors, including BSNL and MTNL, owe ITI Rs291.95 crore for the past three years.
The Union government owns 92.87% of ITI with Karnataka owning 0.11%. The rest is held by ordinary shareholders. ITI has six manufacturing plants spread across Bangalore, Mankapur, Rae Bareli, Naini, Srinagar and Palakkad.
ITI, which used to have 24,500 employees a decade ago, had 13,415 through March, most of them leaving through voluntary retirement schemes.
ITI was formed in 1948 and, even today, about 50% of the national telecom network uses equipment made by the company. However, it now faces stiff competition from Chinese companies such as Huawei Technologies Co. Ltd and ZTE Corp., which earned revenues of $197 million and $577 million, respectively, for 2006-07 from Indian customers.
“With the network needs escalating rapidly across the country, both private and state-owned operators are turning to the likes of Huawei and ZTE who ensure faster roll-out than ITI,” says Parikshit Kandpal, a stock analyst at Sushil Finance Pvt. Ltd.
Shares of ITI closed at Rs57.65 on the Bombay Stock Exchange on Monday, up 1.59%. The shares had traded as low as Rs35.85 on 24 August.
Saturday, December 29, 2007
Rs 10,000 cr revival plan for co-op banks
The centre is likely to provide about Rs 10,000 crore (Rs 100 billion) for reviving cooperative banks and is in talks with multi-lateral agencies World Bank, ADB and KfW for raising a portion of the amount.The Finance Ministry has finalised the package and it would be sent to the Cabinet for approval shortly, a senior ministry official said on Tuesday.He said the centre may provide Rs 10,000 crore while the remaining Rs 4,500 crore (Rs 45 billion) would have to come from states and cooperative sector.
Though Vaidyanathan panel had proposed about Rs 15,000 crore (Rs 150 billion) package for revamping cooperatives be shared by centre, states and cooperatives in the ratio of 53:31:16, the official said the share of centre will increase considerably to about 70-75 per cent.Cooperatives may be allowed to come up with about 5 per cent of the total amount. The government is unlikely to provide budgetary support for this and the money may be borrowed from the market or from multi-lateral agencies.
"World Bank is willing to provide funds for capacity building. KfW of Germany and Asian Development Bank are also willing to participate in the revival of cooperatives," the official said.While agreeing to hike its share of the bailout, the Finance Ministry is likely to insist on a stringent pre-conditions for cooperatives to avail the financial package.The states will be asked to reduce their shareholding in cooperatives to a maximum 25 per cent.
Though Vaidyanathan panel had proposed about Rs 15,000 crore (Rs 150 billion) package for revamping cooperatives be shared by centre, states and cooperatives in the ratio of 53:31:16, the official said the share of centre will increase considerably to about 70-75 per cent.Cooperatives may be allowed to come up with about 5 per cent of the total amount. The government is unlikely to provide budgetary support for this and the money may be borrowed from the market or from multi-lateral agencies.
"World Bank is willing to provide funds for capacity building. KfW of Germany and Asian Development Bank are also willing to participate in the revival of cooperatives," the official said.While agreeing to hike its share of the bailout, the Finance Ministry is likely to insist on a stringent pre-conditions for cooperatives to avail the financial package.The states will be asked to reduce their shareholding in cooperatives to a maximum 25 per cent.
Friday, December 28, 2007
Shree Synthetics draws up Rs 42.5cr revival plan
Shreekant Bangur's ailing Shree Synthetics Ltd, which has recently shifted its registered office from Ujjain in Madhya Pradesh to Calcutta, has drawn up a Rs 42.5-crore revival plan.Company sources said that the revival plan has already been submitted to the operating agency, Industrial Investment Bank of India. ``The scheme has followed all the guidelines laid down by the Reserve Bank of India and its cut off date is March 31, 2000. The banks and the financial institutions involved in the scheme are considering it positively,'' sources said.According to the plan, banks and financial institutions are making an interest sacrifice to the tune of Rs 22 crore and it would be followed by a capital restructuring of Rs 10 crore. A voluntary retirement scheme worth Rs 2.5 crore would be floated and the company is seeking a working capital loan of Rs 8 crore.
``Out of the rest Rs 20.5 crore, the promoter, Shreekant Bangur, will be bringing in Rs 11 crore and Rs 9.5 crore will be given by the banks and financial institutions as need-based working capital,'' company sources said.At present, the workforce of Shree Synthetics is 1,800. A top official of the company said the 250 have been identified for retrenchment through the voluntary retirement scheme.
Shree Synthetics, which manufactures nylon and polyester filament yarn, has its production unit at Naulakhi in Ujjain, Madhya Pradesh.
The company has also decided to change the accounting year from July-June to April-March. ``The current accounting period will be of nine months ending on March 31, 2000,'' sources said.The financial institutions involved in the revival scheme are Unit Trust of India, ICICI Ltd, General Insurance Co, Life Insurance Corp, Union Bank of India and Punjab National Bank among others.Sources said that the company officials will also approach the West Bengal Government for help.``We would approach the State Government and would request them to cooperate with us in reviving the company. We are confident that the state government will lend all sorts of help,'' sources said.
``Out of the rest Rs 20.5 crore, the promoter, Shreekant Bangur, will be bringing in Rs 11 crore and Rs 9.5 crore will be given by the banks and financial institutions as need-based working capital,'' company sources said.At present, the workforce of Shree Synthetics is 1,800. A top official of the company said the 250 have been identified for retrenchment through the voluntary retirement scheme.
Shree Synthetics, which manufactures nylon and polyester filament yarn, has its production unit at Naulakhi in Ujjain, Madhya Pradesh.
The company has also decided to change the accounting year from July-June to April-March. ``The current accounting period will be of nine months ending on March 31, 2000,'' sources said.The financial institutions involved in the revival scheme are Unit Trust of India, ICICI Ltd, General Insurance Co, Life Insurance Corp, Union Bank of India and Punjab National Bank among others.Sources said that the company officials will also approach the West Bengal Government for help.``We would approach the State Government and would request them to cooperate with us in reviving the company. We are confident that the state government will lend all sorts of help,'' sources said.
Friday, December 14, 2007
Industrial sickness : Causes and remedies**
By Ajit Kumar '*'
Sickness in industry is a universal phenomenon .According to one estimate there are five lac sick units in small scale sector and one lac in the medium and large scale sector. Over Rs. 75000 crores of banks and financial institutions funds are locked up in these units.
Sickness is not defined in precise terms in the various Acts. Sickness is a symptom of ailment and not an ailment in itself. Sickness of physical body indicates that some part of the body or the organ is not functioning normal and requires diagnosis. Thus defining sickness in absolute terms has been slightly a tedious job. Defining sickness in industry is still a tough exercise. There has been no standard definition of sickness in industry and probably whatever exists or has been stated as sickness is not definition of sickness but the existence of various parameters which, if present, would indicate that the industrial unit is sick. The financial institutions pay reliance on the· following parameters for the categorisation of the unit in the sick category.
1. Continuous default in repaying the dues of industry.
2. Continuous default in repaying the instalments which have fallen due.
3. Continuous losses.
"Cash-loss" is a fairly acceptable term and stands for the losses before providing depreciation. A unit may not incur cash losses yet it may make default in paying the institutional dues. A unit may be incurring cash losses on a continued basis yet the promoters of the project might be resourceful enough that they might be pumping in additional funds and paying the dues of the institutions in time. The situation thus becomes analogous i.e. a unit which is making cash losses is paying the dues because the promoters are resourceful and a unit which is generating cash accruals is committing default; say due to temporary liquidity problems. Hence the parameters of industrial sickness, as defined above, also do not provide any foolproof yardstick .for measuring sickness.
In this connection reference is invited to the Sick Industries (Special Provisions) Act 1985. As per provisions of the Act a Company may be declared sick if it is registered for seven years; it has accumulated losses which are equal to the net worth of the Company; and if it has incurred cash losses during the financial year in which the reference to Board is made and the year preceding the financial year. Thus the occurrence or cash loss i.e. loss after. deducting depreciation should be for 2 years.
For the purpose of this paper, it is assumed that "Sick Unit" is not a new unit, it has consistently made revenue and cash losses for a number of years, it finds its share capital eroded and needs drastic action to revive it. At the outset it needs to bring out the fact that sickness is not merely a financial phenomenon consisting of losses which can be made good by pumping additional funds to clear all dues. It requires deeper and detailed analysis of the cause which led to the situation.
The Purpose of this article is to know why companies become sick particularly public sector undertakings, what remedial steps should be taken to prevent the chances of companies becoming sick. This paper does not pretend to provide a comprehensive treatment of the subject it raises a few pertinent issues and hopefully provides material for thinking.
Here the fact should not be glossed over that efforts to deal effectively with industrial sickness have so far been largely unsuccessful, is beyond dispute. Only a very small proportion of sick units have been successfully revived.
Sickness concerns the Government, employees, bankers and others having direct contact with the company. However it is also a national problem in as much as companies which consistently make losses result, inter-alia in:
a. Under utilisation of productive capacity.
b. Lack of product demand.
c. Loss of revenue in various forms of indirect taxes.
d. Over Staffing.
e. Possible loss of exports.
The industrial sickness can be due to many factors such as:-
a. Bad strategy and policy.
b. No diversification, product obsolescence.
c. Company went into new project which was badly conceived.
d. Delays in execution of new
project.
e. Poor organisation and staffing.
f. No modernisation.
g. Old and expensive manufacturing process.
h. Poor Marketing Organisation
1.Inadequate emphasis on
marketing as opposed to selling.
J. Did not change from seller's to buyer's market
k. Lack of any formal Planning, especially financial planning.
1. Wrong Capital Structure
What steps should a company and all concerned with it Government, management and bank should take to revive a sick undertaking. A comprehensive study of the undertaking problems and preparing a composite plan of action must be the starting point of the exercise. Piecemeal and adhoc solutions are rarely adequate. What is needed is a detailed assessment of the comp~ny's existing situation and future prospects covering corporate strategy, Investment, markets, organisation, productivity, labour relations, profitability and finance. An undertaking is ostensibly sick because it is short of working capital and systems have not kept pace with its growth, therefore receiving funds alone will not help. Fortunately, revival is possible in a majority of cases, if timely action is taken and revival programme is implemented with sincerity and commitment.
The old Jute mills and textile mills became sick because they were not modernized, technology were not upgraded. Due to rising costs, the operations of these units became unviable. Eventually, the units became sick. Some of the blue chip companies of today are sick units of yesteryear. Take the case of Goldline. now better known as LG. At one point of time everyone wrote off the company and but thanks to revival efforts of new management LG not only recovered from sickness but grew in a spectacular way. At one stage, Apollo Tyre, Tata Tea HMV etc. were among the sick units. But the Management did not lose heart. They revived them with a clear vision and suitable st(ategies. Unfortunately managements of several undertaking think wrongly that once they get funds, the undertaking can be revived. However, as mentioned in the beginning, providing funds, without attending to the underlying causes of sickness could be throwing money into a bottomless pit. From . the long list of possible causes of sickness it will be apparent that the
single most important cause of sickness is ineffective management. Well managed undertaking can even overcome and deal effectively with difficulties which are due to external factors such as poor demand for the industry's products. Therefore what a sick undertaking needs more than anything else or its revival is a good and stable management. In particular, the undertaking should ensure that it has the full time chief executive. Also the other key posts such as Finance Director and Heads of other functions or division should be properly manned. There is unfortunately inadequate mobility of Managers in our country. Therefore where there are inadequacies in managerial talent attracting good people from outsid~ to a sick undertaking is difficult. However, this is a problem which has to be faced. Some people may be attracted by the challenge which the sick units provide. Management is one area where a sick undertaking should not try to economise. The Board of Directors of Indian Public undertakings are amongst the most ineffective in this area. This is in many cases due to fact that they have part time ex-office Directors nominated by the State or Central Govt. They devote more time te their regular duties and a very little time, if at all, on policy matters of the undertakings. The need for an effective Board is particularly strong when the undertaking is in poor health.
An other important consideration which arises is how does Government maintain take control over management of undertaking which has been financed largely by it to which several concessions in the form of interest reduction, conversion of debt into equity etc. As mentioned above, direct involvement by the Government in the manage- . ment of undertaking is not desirable mainly because they do not have capabilities in industrial management. Some financial institutions have worked towards building up a pool of senior Managers on their payroll who could be assigned to sick undertaking for limited periods of say I to 3 years. This is easy to achieve. Probably the best way to ensure control is through control over equity share holding, constitution of the board and leaving .the actual management to carefully chosen professional managers who are both competent and independent. A sick undertaking like a sick patient needs quick action to restore its health. Every day of delayed action means loss of contribution, increase in cash losses, interest, loss of credibility with suppliers and customers and lowering of staff morale. Once a detailed and comprehensive plan of action has been prepared and viability of the unit established, early action by all concerned is imperative. In practice one finds numerous delays which can be attributed to principal shareholders, Banks, Management, Government and labour.
The delays in obtaining funds from Banks and Financial institutions need particular mention because it is funds that the undertaking needs more than anything else, at least in the short term.
However, the management (including the Board) of undertaking are perhaps even more to blame because they have often not prepared a comprehensive plan of action. Also the boards of directors and Government are found to pay scant attention ·to the manning of top management posts. The banks being business institutions, therefore do not know how precisely they are going to revive the undertaking and improve its ability to repay loans and keep up with interest payments.
When an undertaking becomes sick, several agencies are involved in the revival exercise, Central or State Govt. as the case may be, Board of Directors, Managements, Banks, Financial institutions and labour unions. To get them all to act fast in the interests of the undertaking is not an easy task but it is nevertheless essential to prevent the situation from deteriorating. Skilful financial management during sickness is important and there may be need for reconstruction of capital. The comprehensive study discussed earlier should culminate in short term and long term cash projections and once they are reviewed and accepted, actual performance would need to be carefully monitored. A Financial reorganisation may involve some sacrifices by the creditors and shareholders of the undertaking which can be in several forms:-
1. Reduction of the par value of shares.
2. Reduction in rates of interest.
3. Postponement of maturity of debt.
4. Conversion of debt into equity.
5. Change in the nature of claim or obligation such as from secured to unsecured.
6. Concession by the Government in the form of reduction or waiving of indirect taxes, electricity dues etc.
While sickness among companies in private and public sector has become wide spread, regretfully it is stated that enough research has not been done in developing schemes of financial reconstruction in the Indian environment. Needless to add that the academic and professional institutes could play useful role in this regard.
A great deal more is required to be done to revive sick undertaking than is being done today, in particular one could be more systematic about it and act faster. However, in an extreme case, if viability can not be clearly established, a sick undertaking should be allowed to die peacefully.
*ACMA Former CFM ITI Ltd.
** Published in “The Management Accountant, Student Edition, October, 2003
Sickness in industry is a universal phenomenon .According to one estimate there are five lac sick units in small scale sector and one lac in the medium and large scale sector. Over Rs. 75000 crores of banks and financial institutions funds are locked up in these units.
Sickness is not defined in precise terms in the various Acts. Sickness is a symptom of ailment and not an ailment in itself. Sickness of physical body indicates that some part of the body or the organ is not functioning normal and requires diagnosis. Thus defining sickness in absolute terms has been slightly a tedious job. Defining sickness in industry is still a tough exercise. There has been no standard definition of sickness in industry and probably whatever exists or has been stated as sickness is not definition of sickness but the existence of various parameters which, if present, would indicate that the industrial unit is sick. The financial institutions pay reliance on the· following parameters for the categorisation of the unit in the sick category.
1. Continuous default in repaying the dues of industry.
2. Continuous default in repaying the instalments which have fallen due.
3. Continuous losses.
"Cash-loss" is a fairly acceptable term and stands for the losses before providing depreciation. A unit may not incur cash losses yet it may make default in paying the institutional dues. A unit may be incurring cash losses on a continued basis yet the promoters of the project might be resourceful enough that they might be pumping in additional funds and paying the dues of the institutions in time. The situation thus becomes analogous i.e. a unit which is making cash losses is paying the dues because the promoters are resourceful and a unit which is generating cash accruals is committing default; say due to temporary liquidity problems. Hence the parameters of industrial sickness, as defined above, also do not provide any foolproof yardstick .for measuring sickness.
In this connection reference is invited to the Sick Industries (Special Provisions) Act 1985. As per provisions of the Act a Company may be declared sick if it is registered for seven years; it has accumulated losses which are equal to the net worth of the Company; and if it has incurred cash losses during the financial year in which the reference to Board is made and the year preceding the financial year. Thus the occurrence or cash loss i.e. loss after. deducting depreciation should be for 2 years.
For the purpose of this paper, it is assumed that "Sick Unit" is not a new unit, it has consistently made revenue and cash losses for a number of years, it finds its share capital eroded and needs drastic action to revive it. At the outset it needs to bring out the fact that sickness is not merely a financial phenomenon consisting of losses which can be made good by pumping additional funds to clear all dues. It requires deeper and detailed analysis of the cause which led to the situation.
The Purpose of this article is to know why companies become sick particularly public sector undertakings, what remedial steps should be taken to prevent the chances of companies becoming sick. This paper does not pretend to provide a comprehensive treatment of the subject it raises a few pertinent issues and hopefully provides material for thinking.
Here the fact should not be glossed over that efforts to deal effectively with industrial sickness have so far been largely unsuccessful, is beyond dispute. Only a very small proportion of sick units have been successfully revived.
Sickness concerns the Government, employees, bankers and others having direct contact with the company. However it is also a national problem in as much as companies which consistently make losses result, inter-alia in:
a. Under utilisation of productive capacity.
b. Lack of product demand.
c. Loss of revenue in various forms of indirect taxes.
d. Over Staffing.
e. Possible loss of exports.
The industrial sickness can be due to many factors such as:-
a. Bad strategy and policy.
b. No diversification, product obsolescence.
c. Company went into new project which was badly conceived.
d. Delays in execution of new
project.
e. Poor organisation and staffing.
f. No modernisation.
g. Old and expensive manufacturing process.
h. Poor Marketing Organisation
1.Inadequate emphasis on
marketing as opposed to selling.
J. Did not change from seller's to buyer's market
k. Lack of any formal Planning, especially financial planning.
1. Wrong Capital Structure
What steps should a company and all concerned with it Government, management and bank should take to revive a sick undertaking. A comprehensive study of the undertaking problems and preparing a composite plan of action must be the starting point of the exercise. Piecemeal and adhoc solutions are rarely adequate. What is needed is a detailed assessment of the comp~ny's existing situation and future prospects covering corporate strategy, Investment, markets, organisation, productivity, labour relations, profitability and finance. An undertaking is ostensibly sick because it is short of working capital and systems have not kept pace with its growth, therefore receiving funds alone will not help. Fortunately, revival is possible in a majority of cases, if timely action is taken and revival programme is implemented with sincerity and commitment.
The old Jute mills and textile mills became sick because they were not modernized, technology were not upgraded. Due to rising costs, the operations of these units became unviable. Eventually, the units became sick. Some of the blue chip companies of today are sick units of yesteryear. Take the case of Goldline. now better known as LG. At one point of time everyone wrote off the company and but thanks to revival efforts of new management LG not only recovered from sickness but grew in a spectacular way. At one stage, Apollo Tyre, Tata Tea HMV etc. were among the sick units. But the Management did not lose heart. They revived them with a clear vision and suitable st(ategies. Unfortunately managements of several undertaking think wrongly that once they get funds, the undertaking can be revived. However, as mentioned in the beginning, providing funds, without attending to the underlying causes of sickness could be throwing money into a bottomless pit. From . the long list of possible causes of sickness it will be apparent that the
single most important cause of sickness is ineffective management. Well managed undertaking can even overcome and deal effectively with difficulties which are due to external factors such as poor demand for the industry's products. Therefore what a sick undertaking needs more than anything else or its revival is a good and stable management. In particular, the undertaking should ensure that it has the full time chief executive. Also the other key posts such as Finance Director and Heads of other functions or division should be properly manned. There is unfortunately inadequate mobility of Managers in our country. Therefore where there are inadequacies in managerial talent attracting good people from outsid~ to a sick undertaking is difficult. However, this is a problem which has to be faced. Some people may be attracted by the challenge which the sick units provide. Management is one area where a sick undertaking should not try to economise. The Board of Directors of Indian Public undertakings are amongst the most ineffective in this area. This is in many cases due to fact that they have part time ex-office Directors nominated by the State or Central Govt. They devote more time te their regular duties and a very little time, if at all, on policy matters of the undertakings. The need for an effective Board is particularly strong when the undertaking is in poor health.
An other important consideration which arises is how does Government maintain take control over management of undertaking which has been financed largely by it to which several concessions in the form of interest reduction, conversion of debt into equity etc. As mentioned above, direct involvement by the Government in the manage- . ment of undertaking is not desirable mainly because they do not have capabilities in industrial management. Some financial institutions have worked towards building up a pool of senior Managers on their payroll who could be assigned to sick undertaking for limited periods of say I to 3 years. This is easy to achieve. Probably the best way to ensure control is through control over equity share holding, constitution of the board and leaving .the actual management to carefully chosen professional managers who are both competent and independent. A sick undertaking like a sick patient needs quick action to restore its health. Every day of delayed action means loss of contribution, increase in cash losses, interest, loss of credibility with suppliers and customers and lowering of staff morale. Once a detailed and comprehensive plan of action has been prepared and viability of the unit established, early action by all concerned is imperative. In practice one finds numerous delays which can be attributed to principal shareholders, Banks, Management, Government and labour.
The delays in obtaining funds from Banks and Financial institutions need particular mention because it is funds that the undertaking needs more than anything else, at least in the short term.
However, the management (including the Board) of undertaking are perhaps even more to blame because they have often not prepared a comprehensive plan of action. Also the boards of directors and Government are found to pay scant attention ·to the manning of top management posts. The banks being business institutions, therefore do not know how precisely they are going to revive the undertaking and improve its ability to repay loans and keep up with interest payments.
When an undertaking becomes sick, several agencies are involved in the revival exercise, Central or State Govt. as the case may be, Board of Directors, Managements, Banks, Financial institutions and labour unions. To get them all to act fast in the interests of the undertaking is not an easy task but it is nevertheless essential to prevent the situation from deteriorating. Skilful financial management during sickness is important and there may be need for reconstruction of capital. The comprehensive study discussed earlier should culminate in short term and long term cash projections and once they are reviewed and accepted, actual performance would need to be carefully monitored. A Financial reorganisation may involve some sacrifices by the creditors and shareholders of the undertaking which can be in several forms:-
1. Reduction of the par value of shares.
2. Reduction in rates of interest.
3. Postponement of maturity of debt.
4. Conversion of debt into equity.
5. Change in the nature of claim or obligation such as from secured to unsecured.
6. Concession by the Government in the form of reduction or waiving of indirect taxes, electricity dues etc.
While sickness among companies in private and public sector has become wide spread, regretfully it is stated that enough research has not been done in developing schemes of financial reconstruction in the Indian environment. Needless to add that the academic and professional institutes could play useful role in this regard.
A great deal more is required to be done to revive sick undertaking than is being done today, in particular one could be more systematic about it and act faster. However, in an extreme case, if viability can not be clearly established, a sick undertaking should be allowed to die peacefully.
*ACMA Former CFM ITI Ltd.
** Published in “The Management Accountant, Student Edition, October, 2003
Government announces revival package for Mecon Ltd
New Delhi, Feb 8 The cabinet gave its approval Thursday to a revival package for public sector undertaking MECON Limited, involving an expenditure of Rs.2 billion besides several enhancing the retirement age of employees from 58 years to 60 years.
Union Finance Minister P. Chidambaram announced this after a cabinet meeting.
He said that this package would provide support to business and administrative restructuring. It will also provide working capital, reduce current liabilities, reduce borrowings and contain interest charges.
It will improve the net worth of the company and thereby further business opportunities.
Additionally, the revival package will also assure returns to the government as dividend and will eventually be repaid to the latter.
Besides, it will provide financial relief to the company and subsidise the cost of manpower restructuring taken up by the company.
The decision will also provide financial relief to the company and help reduce accumulated losses.
Union Finance Minister P. Chidambaram announced this after a cabinet meeting.
He said that this package would provide support to business and administrative restructuring. It will also provide working capital, reduce current liabilities, reduce borrowings and contain interest charges.
It will improve the net worth of the company and thereby further business opportunities.
Additionally, the revival package will also assure returns to the government as dividend and will eventually be repaid to the latter.
Besides, it will provide financial relief to the company and subsidise the cost of manpower restructuring taken up by the company.
The decision will also provide financial relief to the company and help reduce accumulated losses.
Vanaja Textiles headed for closure
THIRUVANANTHAPURAM: Vanaja Textiles Ltd, one of the oldest private textile mills in the State employing about 500 workers, appears to be headed for permanent closure.
Labour Department sources said on Sunday that a meeting convened by the Regional Joint Labour Commissioner in Ernakulam on Monday last decided on the sale of the mill, located at Kurichikkara near Ponganamkadu in Thrissur district.
Under the agreement, the employees will get a compensation at the rate of 13 days a year, in addition to gratuity. The workers should put in their papers before accepting the compensation.
The machinery and sheds of the company would be dismantled after disbursement of the compensation, the sources told The Hindu
They said the decision to sell the mill was taken without exploring the viability of a revival package submitted by a section of the employees.
The employees claimed that the package would help the company make a net profit of 10.6 per cent if there was no further increase in liabilities and the wages were frozen at the present level.
The company, which started production in August 1951, imposed lay-off in April 2003. Increase in wage cost, electricity charges and raw materials and sluggish demand for cotton were initially cited as the reasons for the lay-off. The management also published notices announcing that paucity of working capital had led to the closure.
Liabilities
As per the petition filed by the management before the Board for Industrial and Financial Reconstruction (BIFR), the company had liabilities of Rs.3.6 crore to Central Bank of India and Rs.9.6 crore to Industrial Development Bank of India (IDBI).
It had to remit Rs.9.49 lakh as Provident Fund contribution, Rs.2.8 lakh to the Employees State Insurance Corporation and Rs.1.24 crore to the Kerala State Electricity Board.
The BIFR had then appointed IDBI as its operating agency to formulate or initiate a viable scheme for its revival.
The efforts made by the previous United Democratic Front (UDF) Government to revive the company had not made much headway.
Trade unions in the company had accepted several proposals put forward by the management, including freezing of wages and stoppage of recruitment of permanent hands.
However, the workers did not yield to the demand of the management to work on bandh or hartal days and to reduce the wages by 25 per cent.
The Ministers of Labour and Industries had jointly convened a meeting to sort out the issue after the Left Democratic Front (LDF) Government came to power. A section of the employees owing allegiance to the Centre of Indian Trade Unions (CITU) had then submitted the revival package as per a suggestion made by the Government.
The CITU leaders alleged that neither the Government nor the IDBI had so far invited them for talks.
Pointing out that a majority of the workers were below 50 years and had served the company for a period of less than 20 years, they said the compensation package worked out at the RLC meeting would not be attractive for such category of workers.
All that the Government had done so far was to assure the management to give some more time to settle the arrears in terms of PF and ESI contributions and the electricity bill.
The Central Bank of India and the IDBI had reportedly agreed to give the option of one-time settlement to the company to clear its dues at reduced liability levels.
The employees of the company claim that the Central Bank had reportedly even agreed to give further loan to the company as working capital provided the Government gave surety.
However, no serious initiative had been launched in this regard so far, the CITU leaders alleged.
Labour Department sources said on Sunday that a meeting convened by the Regional Joint Labour Commissioner in Ernakulam on Monday last decided on the sale of the mill, located at Kurichikkara near Ponganamkadu in Thrissur district.
Under the agreement, the employees will get a compensation at the rate of 13 days a year, in addition to gratuity. The workers should put in their papers before accepting the compensation.
The machinery and sheds of the company would be dismantled after disbursement of the compensation, the sources told The Hindu
They said the decision to sell the mill was taken without exploring the viability of a revival package submitted by a section of the employees.
The employees claimed that the package would help the company make a net profit of 10.6 per cent if there was no further increase in liabilities and the wages were frozen at the present level.
The company, which started production in August 1951, imposed lay-off in April 2003. Increase in wage cost, electricity charges and raw materials and sluggish demand for cotton were initially cited as the reasons for the lay-off. The management also published notices announcing that paucity of working capital had led to the closure.
Liabilities
As per the petition filed by the management before the Board for Industrial and Financial Reconstruction (BIFR), the company had liabilities of Rs.3.6 crore to Central Bank of India and Rs.9.6 crore to Industrial Development Bank of India (IDBI).
It had to remit Rs.9.49 lakh as Provident Fund contribution, Rs.2.8 lakh to the Employees State Insurance Corporation and Rs.1.24 crore to the Kerala State Electricity Board.
The BIFR had then appointed IDBI as its operating agency to formulate or initiate a viable scheme for its revival.
The efforts made by the previous United Democratic Front (UDF) Government to revive the company had not made much headway.
Trade unions in the company had accepted several proposals put forward by the management, including freezing of wages and stoppage of recruitment of permanent hands.
However, the workers did not yield to the demand of the management to work on bandh or hartal days and to reduce the wages by 25 per cent.
The Ministers of Labour and Industries had jointly convened a meeting to sort out the issue after the Left Democratic Front (LDF) Government came to power. A section of the employees owing allegiance to the Centre of Indian Trade Unions (CITU) had then submitted the revival package as per a suggestion made by the Government.
The CITU leaders alleged that neither the Government nor the IDBI had so far invited them for talks.
Pointing out that a majority of the workers were below 50 years and had served the company for a period of less than 20 years, they said the compensation package worked out at the RLC meeting would not be attractive for such category of workers.
All that the Government had done so far was to assure the management to give some more time to settle the arrears in terms of PF and ESI contributions and the electricity bill.
The Central Bank of India and the IDBI had reportedly agreed to give the option of one-time settlement to the company to clear its dues at reduced liability levels.
The employees of the company claim that the Central Bank had reportedly even agreed to give further loan to the company as working capital provided the Government gave surety.
However, no serious initiative had been launched in this regard so far, the CITU leaders alleged.
Rs 700 cr revival package for HMT on cards
New Delhi, August 5 2005
Amid controversy of disinvestment of government’s stake in the state-owned navratna BHEL, Ministry of Heavy Industry and Public Enterprises has proposed a financial package of around Rs 700 crore to revive the HMT Ltd and some of its subsidiaries.
“We are working on a financial package to revive the HMT Ltd and some of its subsidiaries since it has already come out of red. The financial package will include waiver of earlier loans and new loans for expansion and upgradation purposes besides funds for infusion of additional equity,” said Mr Santosh Mohan Dev, while speaking on the sidelines of a conference on “Corporate Governance” organised by Standing Conference of Public Enterprises (SCOPE) here today.
He claimed that the ministry was studying the feasibility of reviving some of those sick companies, which have potential to survive and grow by infusion of fresh funds and through financial restructuring.
Mr Priyardarshi Thakur, Secretary, Heavy Industries and Public Enterprises disclosed that Ministry’s proposal of Rs 735 crore financial package is likely to be cleared by the Board for Reconstruction of Public Sector Enterprises in the next two months. After that package would be submitted to the Cabinet for final clearance.
He said the government is quite serious in reviving the manufacturing plants of the HMT Ltd in Pinjore and Chennai since the company has already gone through financial restructuring and brought down the employees’ strength.
Significantly, the previous BJP led NDA government had proposed to disinvest its stake in the company. But the UPA government has decided to revive those sick units, which have the potential.
Mr Thakur disclosed that HMT Ltd. is also likely to sign an MoU with the Japanese giant, Mitsubishi to manufacture multi-utility vehicles (MUVs) for the rural areas. A company delegation from Japan is coming this month to finalise the deal, he said.
As part of the revival package, he said, the company is already selling its surplus land in Chennai, besides offering VRS to the surplus staff to bring down administrative costs. It has also introduced new models and brought down the cost of production.
Incidentally, HMT has reported a net profit of Rs 5.98 crore during 2004-05 as against as compared to a net loss of Rs 7.97 crore for the year ended March 31, 2004.
After the good monsoon and substantial increase in agriculture credit, the company is looking forward for a good financial year. As part of its strategy to increase its market share, the company has launched HMT Yuva-a 25 hp tractor at a price of Rs 1.85 lakh.
HMT has a capacity to produce 20,000 tractors ranging from 25 HP to 75 HP. The company is also focussing heavily on research and development.
Mr Thakur added that after studying the economic factors, both the companies might decide to manufacture MUVs at Pinjore unit. Earlier, the minister informed that disinvestment of BHEL has been put on hold while a decision to sell stake in Tide Water Oil will depend on the recommendations of the Board for Reconstruction of Public Sector Enterprises.
“We are a transparent government. We will look at all objections to sale of government shares in BHEL. We do not want to steamroll our way. Till the consultations are over we would not go ahead with the sale of BHEL shares,” the minister said.
On the sale of remaining stake in Maruti, Dev said “it is not in my pocket”.
Amid controversy of disinvestment of government’s stake in the state-owned navratna BHEL, Ministry of Heavy Industry and Public Enterprises has proposed a financial package of around Rs 700 crore to revive the HMT Ltd and some of its subsidiaries.
“We are working on a financial package to revive the HMT Ltd and some of its subsidiaries since it has already come out of red. The financial package will include waiver of earlier loans and new loans for expansion and upgradation purposes besides funds for infusion of additional equity,” said Mr Santosh Mohan Dev, while speaking on the sidelines of a conference on “Corporate Governance” organised by Standing Conference of Public Enterprises (SCOPE) here today.
He claimed that the ministry was studying the feasibility of reviving some of those sick companies, which have potential to survive and grow by infusion of fresh funds and through financial restructuring.
Mr Priyardarshi Thakur, Secretary, Heavy Industries and Public Enterprises disclosed that Ministry’s proposal of Rs 735 crore financial package is likely to be cleared by the Board for Reconstruction of Public Sector Enterprises in the next two months. After that package would be submitted to the Cabinet for final clearance.
He said the government is quite serious in reviving the manufacturing plants of the HMT Ltd in Pinjore and Chennai since the company has already gone through financial restructuring and brought down the employees’ strength.
Significantly, the previous BJP led NDA government had proposed to disinvest its stake in the company. But the UPA government has decided to revive those sick units, which have the potential.
Mr Thakur disclosed that HMT Ltd. is also likely to sign an MoU with the Japanese giant, Mitsubishi to manufacture multi-utility vehicles (MUVs) for the rural areas. A company delegation from Japan is coming this month to finalise the deal, he said.
As part of the revival package, he said, the company is already selling its surplus land in Chennai, besides offering VRS to the surplus staff to bring down administrative costs. It has also introduced new models and brought down the cost of production.
Incidentally, HMT has reported a net profit of Rs 5.98 crore during 2004-05 as against as compared to a net loss of Rs 7.97 crore for the year ended March 31, 2004.
After the good monsoon and substantial increase in agriculture credit, the company is looking forward for a good financial year. As part of its strategy to increase its market share, the company has launched HMT Yuva-a 25 hp tractor at a price of Rs 1.85 lakh.
HMT has a capacity to produce 20,000 tractors ranging from 25 HP to 75 HP. The company is also focussing heavily on research and development.
Mr Thakur added that after studying the economic factors, both the companies might decide to manufacture MUVs at Pinjore unit. Earlier, the minister informed that disinvestment of BHEL has been put on hold while a decision to sell stake in Tide Water Oil will depend on the recommendations of the Board for Reconstruction of Public Sector Enterprises.
“We are a transparent government. We will look at all objections to sale of government shares in BHEL. We do not want to steamroll our way. Till the consultations are over we would not go ahead with the sale of BHEL shares,” the minister said.
On the sale of remaining stake in Maruti, Dev said “it is not in my pocket”.
Revival packages for 23, with financial assistance of Rs 7,660 crore.
KOLKATA: Hindustan Aeronautics Ltd, National Aluminium Co and Power Finance Corp are among the seven public sector firms that would be given the navratna status soon, Minister for Heavy Industries Santosh Mohan Dev said on Friday.
An apex committee had recommended granting of navratna status to HAL, NALCO, PFC, Bharat Electronics Ltd, National Mineral Development Corporation, Power Grid Corporation of India and Rural Electrification Corporation Ltd, he said.
He said these would be granted the status as soon as they induct independent directors on their board.
With these, the number of navratna CPSUs under the Heavy Industry ministry would increase from nine to 16. Oil and Natural Gas Corp, NTPC Ltd, BHEL and Indian Oil are among the nine existing navratna companies.
The minister, addressing a meeting at the Bengal National Chamber of Commerce & Industry here, said the government would not sell any profit-making enterprises to private parties.
"We are interested in selling only sick companies," Dev said in reply to a question.
Dev said the Board for Reconstruction of Public Sector Enterprises (BRPSE) had identified 75 sick CPSUs, out of which 43 units had been earmarked for revival.
He said the government had already approved revival packages for 23, with financial assistance of Rs 7,660 crore.
Referring to West Bengal, Dev said the ministry had approved revival and restructuring of four PSUs -- Andrew Yule & Company, Bridge & Roof, BBJ Construction Company Ltd and Braithwaite & Company Ltd.
On the issue of revival of Burn Standard, Dev said the matter would be sent to the cabinet for approval.
He said three companies - Braithwaite, Tyre Corporation of India and Burn Standard - had already started paying wages and salaries from their own resources.
The government was considering payment of salaries of Bharat Opthalmic Glass Ltd in Durgapur, he added.
Dev said the government would shortly hand over National Instruments Ltd to Jadavpur University. He, however, said there would be a rider attached to it that the university would not be allowed to sell the land occupied by the company.
Referring to closed MAMC in Durgapur, he said a number of private suitors had expressed their interest in acquiring the assets of the company.
To another query, he said the government was keen to sell its residual stake in Jessop & Company
An apex committee had recommended granting of navratna status to HAL, NALCO, PFC, Bharat Electronics Ltd, National Mineral Development Corporation, Power Grid Corporation of India and Rural Electrification Corporation Ltd, he said.
He said these would be granted the status as soon as they induct independent directors on their board.
With these, the number of navratna CPSUs under the Heavy Industry ministry would increase from nine to 16. Oil and Natural Gas Corp, NTPC Ltd, BHEL and Indian Oil are among the nine existing navratna companies.
The minister, addressing a meeting at the Bengal National Chamber of Commerce & Industry here, said the government would not sell any profit-making enterprises to private parties.
"We are interested in selling only sick companies," Dev said in reply to a question.
Dev said the Board for Reconstruction of Public Sector Enterprises (BRPSE) had identified 75 sick CPSUs, out of which 43 units had been earmarked for revival.
He said the government had already approved revival packages for 23, with financial assistance of Rs 7,660 crore.
Referring to West Bengal, Dev said the ministry had approved revival and restructuring of four PSUs -- Andrew Yule & Company, Bridge & Roof, BBJ Construction Company Ltd and Braithwaite & Company Ltd.
On the issue of revival of Burn Standard, Dev said the matter would be sent to the cabinet for approval.
He said three companies - Braithwaite, Tyre Corporation of India and Burn Standard - had already started paying wages and salaries from their own resources.
The government was considering payment of salaries of Bharat Opthalmic Glass Ltd in Durgapur, he added.
Dev said the government would shortly hand over National Instruments Ltd to Jadavpur University. He, however, said there would be a rider attached to it that the university would not be allowed to sell the land occupied by the company.
Referring to closed MAMC in Durgapur, he said a number of private suitors had expressed their interest in acquiring the assets of the company.
To another query, he said the government was keen to sell its residual stake in Jessop & Company
Andrew Yule revival plan to CCD for clearance
As published in “The Hindu Business Line”
Kolkata , Oct. 1 2005
THE Rs 170-crore restructuring and revival package for Andrew Yule Ltd, a Government enterprise, now cleared by the Department of Heavy Industry, is likely to come up at the CCD meet on October 3. The plan calls for upgradation of manufacturing facilities in all divisions of the company for improvement in productivity and quality, and a cut in operating cycle time.
Once through with CCD (Cabinet Committee on Disinvestment), the financial bids by potential strategic investors will come up, and a fresh data room for inspection by interested parties will have to be set up at the company's headquarters here for necessary inspection. The entire process may take another five months to be completed.
Starved of working capital requirements, and with net worth totally eroded, all three divisions of the company, namely engineering, electrical and tea were now going through tough times, unable to execute orders especially from the power sector.
The restructuring proposal, based on a detailed report prepared by L.B. Jha & Co, chartered accountants, includes conversion of existing government loans into equity, infusion of fresh working capital from Government of India, issuance of Government guarantee to enable the company to mobilise a matching amount from the market through private placement of bonds and mobilisation of resources through sale of company's holdings in some of the group companies like Tide Water Oil.
Talking to Business Line after the company's annual general meeting here on Tuesday, Mr Arindom Mukherjee, chairman and managing director, said he was quite hopeful of an early clearance for the company's revival plan. Despite having impressive orders in hand from customers, the execution thereof was becoming difficult as the working capital crisis continued to deepen. He said the severe crisis faced by the company's Tea Division, contributed by the difficulties of the Indian tea industry as a whole during 2002-03 and still continuing.
The average prices realised for tea in Guwahati, Siliguri and Kolkata auctions have declined from Rs 80.57 a kg during 99-2000 to Rs 66.37/kg in 2002-03, and the current year's trend so far is even worse, he said. The bulk tea producers, he felt, have been pummelled by a steep fall in price on the one hand and rise in input costs owing to increase in salaries and wages and sharp increase in essential inputs like fertiliser, coal, gas, diesel, etc., on the other. This, together with mushroom growth of large number of bought leaf factories and inroads made by imported tea have severely shrunk the margins of tea manufacturers, he pointed out.
The company's tea division has lost nearly Rs 16.88 crore and Rs 27.10 crore owing to adverse price and cost variance respectively during the period 97-98 to 2002-03. The erosion in the profitability of Andrew Yule's tea division is said to be around Rs 52 crore in the last four years, and the outlook for the current year is not all encouraging, according to the CMD.
Earlier, responding to shareholders' anxious queries on the future prospects, Mr Mukherjee said as regards the company's Electrical Division, new thrust has been given on exports, product development and validation of test certificates as per the changing needs of the market and customer profile to obviate continued heavy dependence on state electricity boards.
He said the Engineering Division, which over the years has downsized manpower and reduced overheads, was now poised for revival. The division has been receiving turnkey contracts from Nuclear Power Corporation and Eastern Railway for installation of water pollution control and sewerage systems at various workshops of these organisations.
Kolkata , Oct. 1 2005
THE Rs 170-crore restructuring and revival package for Andrew Yule Ltd, a Government enterprise, now cleared by the Department of Heavy Industry, is likely to come up at the CCD meet on October 3. The plan calls for upgradation of manufacturing facilities in all divisions of the company for improvement in productivity and quality, and a cut in operating cycle time.
Once through with CCD (Cabinet Committee on Disinvestment), the financial bids by potential strategic investors will come up, and a fresh data room for inspection by interested parties will have to be set up at the company's headquarters here for necessary inspection. The entire process may take another five months to be completed.
Starved of working capital requirements, and with net worth totally eroded, all three divisions of the company, namely engineering, electrical and tea were now going through tough times, unable to execute orders especially from the power sector.
The restructuring proposal, based on a detailed report prepared by L.B. Jha & Co, chartered accountants, includes conversion of existing government loans into equity, infusion of fresh working capital from Government of India, issuance of Government guarantee to enable the company to mobilise a matching amount from the market through private placement of bonds and mobilisation of resources through sale of company's holdings in some of the group companies like Tide Water Oil.
Talking to Business Line after the company's annual general meeting here on Tuesday, Mr Arindom Mukherjee, chairman and managing director, said he was quite hopeful of an early clearance for the company's revival plan. Despite having impressive orders in hand from customers, the execution thereof was becoming difficult as the working capital crisis continued to deepen. He said the severe crisis faced by the company's Tea Division, contributed by the difficulties of the Indian tea industry as a whole during 2002-03 and still continuing.
The average prices realised for tea in Guwahati, Siliguri and Kolkata auctions have declined from Rs 80.57 a kg during 99-2000 to Rs 66.37/kg in 2002-03, and the current year's trend so far is even worse, he said. The bulk tea producers, he felt, have been pummelled by a steep fall in price on the one hand and rise in input costs owing to increase in salaries and wages and sharp increase in essential inputs like fertiliser, coal, gas, diesel, etc., on the other. This, together with mushroom growth of large number of bought leaf factories and inroads made by imported tea have severely shrunk the margins of tea manufacturers, he pointed out.
The company's tea division has lost nearly Rs 16.88 crore and Rs 27.10 crore owing to adverse price and cost variance respectively during the period 97-98 to 2002-03. The erosion in the profitability of Andrew Yule's tea division is said to be around Rs 52 crore in the last four years, and the outlook for the current year is not all encouraging, according to the CMD.
Earlier, responding to shareholders' anxious queries on the future prospects, Mr Mukherjee said as regards the company's Electrical Division, new thrust has been given on exports, product development and validation of test certificates as per the changing needs of the market and customer profile to obviate continued heavy dependence on state electricity boards.
He said the Engineering Division, which over the years has downsized manpower and reduced overheads, was now poised for revival. The division has been receiving turnkey contracts from Nuclear Power Corporation and Eastern Railway for installation of water pollution control and sewerage systems at various workshops of these organisations.
Rs 115-cr revival plan proposed for Hind Antibiotics
As published in “The Hindu Business Line”
New Delhi , Aug. 9 2004
The board of ailing Hindustan Antibiotics Ltd has submitted a Rs 115-crore revival package to the Government involving fresh capital infusion and one-time settlement of dues of financial institutions.
The Department of Chemicals and Petrochemicals is currently examining the plan and will finalise its stand by the end of the month, officials said.
"According to the plan submitted to the Government funds would be generated through a mix of fresh infusion of funds by the Ministry, seeking of waiver from financial institutions as well as generating internal funds by selling off surplus land," officials said.
After the department finalises its views on the company's revival plan, it will invite comments from the other Ministries concerned, including the Ministry of Finance. Subsequently, the matter will be referred to the IDBI.
"Only after IDBI, which is the operating agency for this company, approves of the revival package can Hindustan Anitbiotics be brought out of the Board of Industrial and Financial Reconstruction (BIFR) net," sources said.
The Common Minimum Programme (CMP) of the present United Progressive Alliance (UPA) had clearly stated that the Government would try and revive some of the ailing public sector units (PSUs).
In fact, the Finance Minister, Mr P. Chidambaram, had in his Budget speech also stated, "HAL will be given financial support for restructuring."
Earlier, the Minister for Chemicals and Fertilisers, Mr Ram Vilas Paswan, had estimated that the company would need around Rs 70 crore for revival and it already has land worth Rs 40 crore.
Hindustan Antibiotics is one of the oldest PSU companies, which was set up by the first Prime Minister of India, Mr Jawahar Lal Nehru, after he realised that Mahatma Gandhi's wife Kasturba Gandhi died due to non-availability of antibiotics.
Subsequently, the company started making losses and has been under the BIFR fold since March 31, 1997.
The BIFR had invited private companies to bid for the sick unit and Sun Pharmaceuticals had submitted a rehabilitation plan.
With the change in Government policy, the Mumbai-based company decided to pull out of the race.
The success turnaround of HAL will pave the way for other such proposals. The Government recently set up a technical committee for looking into the rehabilitation of Indian Drugs and Pharmaceuticals Ltd.
Hindustan Organics and Chemicals Ltd, another PSU under the Chemicals and Fertilisers Ministry is also in the red.
New Delhi , Aug. 9 2004
The board of ailing Hindustan Antibiotics Ltd has submitted a Rs 115-crore revival package to the Government involving fresh capital infusion and one-time settlement of dues of financial institutions.
The Department of Chemicals and Petrochemicals is currently examining the plan and will finalise its stand by the end of the month, officials said.
"According to the plan submitted to the Government funds would be generated through a mix of fresh infusion of funds by the Ministry, seeking of waiver from financial institutions as well as generating internal funds by selling off surplus land," officials said.
After the department finalises its views on the company's revival plan, it will invite comments from the other Ministries concerned, including the Ministry of Finance. Subsequently, the matter will be referred to the IDBI.
"Only after IDBI, which is the operating agency for this company, approves of the revival package can Hindustan Anitbiotics be brought out of the Board of Industrial and Financial Reconstruction (BIFR) net," sources said.
The Common Minimum Programme (CMP) of the present United Progressive Alliance (UPA) had clearly stated that the Government would try and revive some of the ailing public sector units (PSUs).
In fact, the Finance Minister, Mr P. Chidambaram, had in his Budget speech also stated, "HAL will be given financial support for restructuring."
Earlier, the Minister for Chemicals and Fertilisers, Mr Ram Vilas Paswan, had estimated that the company would need around Rs 70 crore for revival and it already has land worth Rs 40 crore.
Hindustan Antibiotics is one of the oldest PSU companies, which was set up by the first Prime Minister of India, Mr Jawahar Lal Nehru, after he realised that Mahatma Gandhi's wife Kasturba Gandhi died due to non-availability of antibiotics.
Subsequently, the company started making losses and has been under the BIFR fold since March 31, 1997.
The BIFR had invited private companies to bid for the sick unit and Sun Pharmaceuticals had submitted a rehabilitation plan.
With the change in Government policy, the Mumbai-based company decided to pull out of the race.
The success turnaround of HAL will pave the way for other such proposals. The Government recently set up a technical committee for looking into the rehabilitation of Indian Drugs and Pharmaceuticals Ltd.
Hindustan Organics and Chemicals Ltd, another PSU under the Chemicals and Fertilisers Ministry is also in the red.
Working capital shortage plagues Dunlop’s revival plans
As published in “The Hindu ” 21st July 2007
Special Correspondent
Co. needs Rs. 400 cr. to meet past liabilities; Ambattur unit may resume in Aug.
Asset sale proceeds transferred to new subsidiaries
KOLKATA: Through a part-revaluation of its assets and the sale of assets, including land in Tamil Nadu and a property in Mumbai, Dunlop India has reported a positive net worth of Rs. 1,358 crore in 2006-07 against a minus Rs. 400 crore net worth in 2005-06.
Company Chairman, Pawan Ruia, told The Hindu that the proceeds from the sale of ‘non-core’ assets were transferred to four new subsidiaries — Dunlop Properties, Dunlop Infrastructure, Dunlop Estates and Bhartiya Ho tels — formed earlier this year. These would be non-Board for Industrial and Financial Reconstruction (BIFR) companies. The assets, which have been transferred at a consideration of Rs. 230 crore, were 58 acres near Ambattur and a property sale at Worli in Maharashtra which netted Rs. 150 crore. The BIFR was approached for deregistration and the company was awaiting the next hearing.
Although based on this part-financial recast a Rs. 78 crore net profit was carried to the balance sheet in 2006-07, working capital shortages were still plaguing the company’s revival plans for its units in Sahagunj in West Bengal and Ambattur in Tamil Nadu.
The Ambattur unit, where production had been stopped for some time now, expects to resume around August. The Sahagunj unit is operational but Mr. Ruia stated that commercial production could only start after stabilisation of production. Earlier, this was expected by April.
Mr. Ruia has invested Rs. 260 crore in Dunlop since his acquisition of the company from the Chhabrias in December 2005. Now nearly Rs. 400 crore is required to meet the working capital requirements and to meet past liabilities.
Mr. Ruia earlier told reporters after the company’s annual general meeting that funds flow, expected through a successful rights issue of Rs. 27 crore in April, was blocked after the Appellate Authority for Industrial & Financial Reconstruction (AAIFR) issued a stay order on the issue. The appellate authority issued its order following a complaint launched by LIC that the company was not following the procedures regarding the issue. LIC holds a six per cent stake in Dunlop.
While pointing out that some funds have been arranged, Mr. Ruia said Dunlop’s BIFR listing limited its recourse to bank finances and the stay order blocked its plans to raise money from the capital market. Trading in the company’s shares has been suspended for over four years now. He declined to name the bank beyond saying that it was a foreign bank with Indian operations.
Special Correspondent
Co. needs Rs. 400 cr. to meet past liabilities; Ambattur unit may resume in Aug.
Asset sale proceeds transferred to new subsidiaries
KOLKATA: Through a part-revaluation of its assets and the sale of assets, including land in Tamil Nadu and a property in Mumbai, Dunlop India has reported a positive net worth of Rs. 1,358 crore in 2006-07 against a minus Rs. 400 crore net worth in 2005-06.
Company Chairman, Pawan Ruia, told The Hindu that the proceeds from the sale of ‘non-core’ assets were transferred to four new subsidiaries — Dunlop Properties, Dunlop Infrastructure, Dunlop Estates and Bhartiya Ho tels — formed earlier this year. These would be non-Board for Industrial and Financial Reconstruction (BIFR) companies. The assets, which have been transferred at a consideration of Rs. 230 crore, were 58 acres near Ambattur and a property sale at Worli in Maharashtra which netted Rs. 150 crore. The BIFR was approached for deregistration and the company was awaiting the next hearing.
Although based on this part-financial recast a Rs. 78 crore net profit was carried to the balance sheet in 2006-07, working capital shortages were still plaguing the company’s revival plans for its units in Sahagunj in West Bengal and Ambattur in Tamil Nadu.
The Ambattur unit, where production had been stopped for some time now, expects to resume around August. The Sahagunj unit is operational but Mr. Ruia stated that commercial production could only start after stabilisation of production. Earlier, this was expected by April.
Mr. Ruia has invested Rs. 260 crore in Dunlop since his acquisition of the company from the Chhabrias in December 2005. Now nearly Rs. 400 crore is required to meet the working capital requirements and to meet past liabilities.
Mr. Ruia earlier told reporters after the company’s annual general meeting that funds flow, expected through a successful rights issue of Rs. 27 crore in April, was blocked after the Appellate Authority for Industrial & Financial Reconstruction (AAIFR) issued a stay order on the issue. The appellate authority issued its order following a complaint launched by LIC that the company was not following the procedures regarding the issue. LIC holds a six per cent stake in Dunlop.
While pointing out that some funds have been arranged, Mr. Ruia said Dunlop’s BIFR listing limited its recourse to bank finances and the stay order blocked its plans to raise money from the capital market. Trading in the company’s shares has been suspended for over four years now. He declined to name the bank beyond saying that it was a foreign bank with Indian operations.
Govt's revival plan for fertilizer units
NEW DELHI: in an attempt to revive some closed fertilizer units in the country, the Government has initiated the process of examining the feasibility of HFC and FCI, (including Durgapur, Talcher, Barauni and Ramagundam) subject to the confirmed availability of gas
This information was given by the Minister of State for Chemicals & Fertilisers B K Handique in a written reply in the Rajya Sabha on Friday.
Rashtriya Chemicals & Fertilisers (RCF) has shown interest in the Durgapur and Tacher Units; National Fertilisers Ltd. (NFL) has shown interest in Barauni and Ramagundam Units; and Krishak Bharati Cooperative Ltd. (KRIBHCO) has shown interest in the Gorakhpur Unit.
The revival process of the closed units is in the stage of examination and preparation of techno-ecnomic feasibility reports. Therefore, at this stage, it is not feasible to indicate a definite time schedule for finalisation of tender or for commencement of construction work.
In reply to another question the Minister said, Government has recently granted authorisation to GAIL for laying Jagdishpur-Haldia pipeline. In terms of the authorisation issued, the pipeline must be commissioned within 36 months from the date of the start of the project.
Further, the fertiliser companies willing to revive the closed units in this sector are already in discussion with GAIL for firm commitment/agreement for connectivity and gas availability. No agreement has been finalized yet.
This information was given by the Minister of State for Chemicals & Fertilisers B K Handique in a written reply in the Rajya Sabha on Friday.
Rashtriya Chemicals & Fertilisers (RCF) has shown interest in the Durgapur and Tacher Units; National Fertilisers Ltd. (NFL) has shown interest in Barauni and Ramagundam Units; and Krishak Bharati Cooperative Ltd. (KRIBHCO) has shown interest in the Gorakhpur Unit.
The revival process of the closed units is in the stage of examination and preparation of techno-ecnomic feasibility reports. Therefore, at this stage, it is not feasible to indicate a definite time schedule for finalisation of tender or for commencement of construction work.
In reply to another question the Minister said, Government has recently granted authorisation to GAIL for laying Jagdishpur-Haldia pipeline. In terms of the authorisation issued, the pipeline must be commissioned within 36 months from the date of the start of the project.
Further, the fertiliser companies willing to revive the closed units in this sector are already in discussion with GAIL for firm commitment/agreement for connectivity and gas availability. No agreement has been finalized yet.
Shree Synthetics to focus on NFY in revival plan
SHREE Synthetics Ltd (SSL), the ailing Shreekant Bangur company, has begun changing its product-mix so as to focus on nylon filament yarn (NFY) as against polyester filament yarn (PFY). This is part of the company's revival strategy.
Informed sources said that nearly 6,500 tonnes of SSL's 11,000 tonnes capacity at its unit at Ujjain in Madhya Pradesh had been earmarked for NFY, with the remaining being used for production of PFY. Earlier, the share of NFY was 4,000 tonnes. Sources at tributed the shift to scope of higher realisation and value-addition.
This strategy is being pursued along with a financial restructuring plan which would reduce the Rs. 110-crore accumulated loss by Rs. 36 crores.
SSL, which was referred to BIFR in August 1997, is carrying on parleys to finalise a Rs. 42-crore revival plan worked out by Industrial Reconstruction Bank of India (IRBI), its operating agency.
As part of its financial recast blueprint, SSL planned to reduce its Rs. 20-crore share capital by 60 per cent. There were also plans to appropriate Rs. 24 crores from its free reserves to reduce losses.
As per the revival plan, while Rs. 12 crores were proposed to be spent on replacement and debottlenecking schemes, some investment was also proposed to be made on balancing equipment. Another Rs. 2.3 crores were to be spent on VRS to effect a 10 per cent reduction in the 1,800 strong workforce. The balance would be required for meeting the working capital requirements. SSL also planned a wage freeze during the rehabilitation period. Currently, negotiations are on with the unions in this regard.
The revival plan would be funded through contributions made by the promoters and their associates (Rs. 12 crores), need-based funds support by banks (Rs. eight crores) and internal accruals (Rs. 80 lakhs). A sacrifice of around Rs. 21 crores has been env isaged in the rehabilitation plan by banks, FIs and some other agencies. FIs and banks together have a 35 per cent stake while the promoters and their associates hold a 25 per cent share. The balance is with the public.
The cut-off date for the revival scheme, which has a seven-year timeframe, was March 31, 2000.
Explaining the reasons behind the losses, sources said that high prices of raw materials, coupled with poor realisations and high level of imports, were resulting in very poor margins, especially in PFY, where there was over supply.
Although in the last Union Budget, the excise duty slabs for PFY were restructured, it provided only marginal relief and SSL's losses continued.
Informed sources said that nearly 6,500 tonnes of SSL's 11,000 tonnes capacity at its unit at Ujjain in Madhya Pradesh had been earmarked for NFY, with the remaining being used for production of PFY. Earlier, the share of NFY was 4,000 tonnes. Sources at tributed the shift to scope of higher realisation and value-addition.
This strategy is being pursued along with a financial restructuring plan which would reduce the Rs. 110-crore accumulated loss by Rs. 36 crores.
SSL, which was referred to BIFR in August 1997, is carrying on parleys to finalise a Rs. 42-crore revival plan worked out by Industrial Reconstruction Bank of India (IRBI), its operating agency.
As part of its financial recast blueprint, SSL planned to reduce its Rs. 20-crore share capital by 60 per cent. There were also plans to appropriate Rs. 24 crores from its free reserves to reduce losses.
As per the revival plan, while Rs. 12 crores were proposed to be spent on replacement and debottlenecking schemes, some investment was also proposed to be made on balancing equipment. Another Rs. 2.3 crores were to be spent on VRS to effect a 10 per cent reduction in the 1,800 strong workforce. The balance would be required for meeting the working capital requirements. SSL also planned a wage freeze during the rehabilitation period. Currently, negotiations are on with the unions in this regard.
The revival plan would be funded through contributions made by the promoters and their associates (Rs. 12 crores), need-based funds support by banks (Rs. eight crores) and internal accruals (Rs. 80 lakhs). A sacrifice of around Rs. 21 crores has been env isaged in the rehabilitation plan by banks, FIs and some other agencies. FIs and banks together have a 35 per cent stake while the promoters and their associates hold a 25 per cent share. The balance is with the public.
The cut-off date for the revival scheme, which has a seven-year timeframe, was March 31, 2000.
Explaining the reasons behind the losses, sources said that high prices of raw materials, coupled with poor realisations and high level of imports, were resulting in very poor margins, especially in PFY, where there was over supply.
Although in the last Union Budget, the excise duty slabs for PFY were restructured, it provided only marginal relief and SSL's losses continued.
Central Bank charts revival plan
Revival strategy
A topline growth of 25 per cent over Rs 1.05-lakh crore. Augmenting the capital adequacy ratio.
Reducing NPAs, expanding branch network.
Strengthening the delivery channels in the form of additional ATMs.
Hyderabad , Aug. 6 2006
Central Bank of India (CBI) has chalked out a major revival programme and expectes an improvement in performance in the current fiscal. The move comes in the wake of the bank having suffered on several performance parameters during the fiscal ended March 2006, mainly owing to a treasury income fall of over Rs 400 crore.
According to the CBI Chairperson and Managing Director, Ms H.A. Daruwalla, the strategy involves a topline growth of 25 per cent over Rs 1.05-lakh crore, significantly improving profitability, augmenting capital adequacy ratio, reducing non-performing assets, expanding branch network and connectivity and strengthening delivery channels in the form of additional automated teller machines (ATMs).
The bank, which has suffered a fall in capital adequacy at 11.03 per cent during the last fiscal from 12.15 per cent in the previous fiscal, is keen on tapping the capital market with an initial public offering (IPO) before the current fiscal-end, Ms Daruwalla told Business Line.
"We have recently made representations to the Union Ministry of Finance (MoF) and the Reserve Bank of India (RBI) seeking their clearances for the IPO and also urging separate treatment to a portion of our existing paid-up capital. We have a huge capital base of Rs 1,124 crore and given our profitability, the EPS appears poor. We have sought the conversion of a substantial portion of the paid-up capital into preference capital," Ms Daruwalla said.
Tier II debt issue
Meanwhile, keeping in view the growing business volumes and also to meet the Basel-II norms, CBI is mulling over raising subordinated debt of around Rs 700 crore under tier-II capital. The tier-II issue could be completed before the calendar year-end and improve the capital adequacy to at least 11.3 per cent , she said.
Network expansion
The bank proposes to substantially expand its branch network from 3,129 branches . In the South alone, the bank proposes to open 32 branches in Andhra Pradesh and 35 in Karnataka. It also proposes to add 320 more ATMs to the existing 180 , taking the total network to 500 .
The bank has also embarked upon a major technology initiative of implementing core-banking solution across 700 branches at an investment of Rs 150 crore through Tata Consultancy Services .
Proposes cut in NPAs
The bank proposes to reduce its non-performing assets by at least Rs 650 crore through cash recoveries, compromises, upgradation and write-offs.
During the last fiscal, the bank could bring down the gross NPAs in percentage terms to 6.85 per cent from 9.01 per cent in the previous fiscal, however, in absolute terms theymoved up to Rs 2,684 crore from Rs 2,621 crore. The net NPAs have also gone up to 2.98 per cent from 2.59 per cent.
A topline growth of 25 per cent over Rs 1.05-lakh crore. Augmenting the capital adequacy ratio.
Reducing NPAs, expanding branch network.
Strengthening the delivery channels in the form of additional ATMs.
Hyderabad , Aug. 6 2006
Central Bank of India (CBI) has chalked out a major revival programme and expectes an improvement in performance in the current fiscal. The move comes in the wake of the bank having suffered on several performance parameters during the fiscal ended March 2006, mainly owing to a treasury income fall of over Rs 400 crore.
According to the CBI Chairperson and Managing Director, Ms H.A. Daruwalla, the strategy involves a topline growth of 25 per cent over Rs 1.05-lakh crore, significantly improving profitability, augmenting capital adequacy ratio, reducing non-performing assets, expanding branch network and connectivity and strengthening delivery channels in the form of additional automated teller machines (ATMs).
The bank, which has suffered a fall in capital adequacy at 11.03 per cent during the last fiscal from 12.15 per cent in the previous fiscal, is keen on tapping the capital market with an initial public offering (IPO) before the current fiscal-end, Ms Daruwalla told Business Line.
"We have recently made representations to the Union Ministry of Finance (MoF) and the Reserve Bank of India (RBI) seeking their clearances for the IPO and also urging separate treatment to a portion of our existing paid-up capital. We have a huge capital base of Rs 1,124 crore and given our profitability, the EPS appears poor. We have sought the conversion of a substantial portion of the paid-up capital into preference capital," Ms Daruwalla said.
Tier II debt issue
Meanwhile, keeping in view the growing business volumes and also to meet the Basel-II norms, CBI is mulling over raising subordinated debt of around Rs 700 crore under tier-II capital. The tier-II issue could be completed before the calendar year-end and improve the capital adequacy to at least 11.3 per cent , she said.
Network expansion
The bank proposes to substantially expand its branch network from 3,129 branches . In the South alone, the bank proposes to open 32 branches in Andhra Pradesh and 35 in Karnataka. It also proposes to add 320 more ATMs to the existing 180 , taking the total network to 500 .
The bank has also embarked upon a major technology initiative of implementing core-banking solution across 700 branches at an investment of Rs 150 crore through Tata Consultancy Services .
Proposes cut in NPAs
The bank proposes to reduce its non-performing assets by at least Rs 650 crore through cash recoveries, compromises, upgradation and write-offs.
During the last fiscal, the bank could bring down the gross NPAs in percentage terms to 6.85 per cent from 9.01 per cent in the previous fiscal, however, in absolute terms theymoved up to Rs 2,684 crore from Rs 2,621 crore. The net NPAs have also gone up to 2.98 per cent from 2.59 per cent.
Cabinet approves revival plan for Heavy Engineering Corp
25.01.2006
The Cabinet has cleared the proposal for reviving Heavy Engineering Corporation (HFC), a sick state-run-company manufacturing equipment for the iron and steel industry.In an innovative restructuring proposal, the Cabinet has decided to form a committee under the Cabinet secretary to ensure that a certain number of orders form the steel and coal sector are awarded to HEC.The revival plan includes conversion of the Plan loan of Rs 15 crore -27 crore into equity,waiver of a non-plan loan and interest on Plan and non-Plan loans and provision of a non-Plan bridge bridge loan of Rs 102 crore.
"Fresh cash infusion from the government is essentially the bridge loan that is being given.Besides this, the company will raise around Rs 300 crore through the sale of assets, to pay back the loan and other dues," a government official in the heavy industry said.The recast proposal includes settling electricity dues of the Jharkhand SEB of Rs 500 crore, and a Rs 73-crore liability payable to the CISF by transferring of an equal amount of land to the creditor.Further,around Rs 330 crore will be raised by transferring residential and non-residential buildings on rent with theJharkhand government and privatising schools and hospitals run by the company.
The Cabinet has cleared the proposal for reviving Heavy Engineering Corporation (HFC), a sick state-run-company manufacturing equipment for the iron and steel industry.In an innovative restructuring proposal, the Cabinet has decided to form a committee under the Cabinet secretary to ensure that a certain number of orders form the steel and coal sector are awarded to HEC.The revival plan includes conversion of the Plan loan of Rs 15 crore -27 crore into equity,waiver of a non-plan loan and interest on Plan and non-Plan loans and provision of a non-Plan bridge bridge loan of Rs 102 crore.
"Fresh cash infusion from the government is essentially the bridge loan that is being given.Besides this, the company will raise around Rs 300 crore through the sale of assets, to pay back the loan and other dues," a government official in the heavy industry said.The recast proposal includes settling electricity dues of the Jharkhand SEB of Rs 500 crore, and a Rs 73-crore liability payable to the CISF by transferring of an equal amount of land to the creditor.Further,around Rs 330 crore will be raised by transferring residential and non-residential buildings on rent with theJharkhand government and privatising schools and hospitals run by the company.
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