IPL already has a job work agreement with Reliance Industries Ltd which ensures full capacity utilisation and gives it a fixed operating income per tonne of polyester staple fibre produced by it. Its accumulated losses on March 31,1998 was Rs 175.66 crore.

This is in line with Reliance's declared policy of building up polyester fibre capacity through acquisitions and follows its earlier acquisition of Orissa Synthetics from the JK group.

The management of India Polyfibres Ltd (IPL) has decided at its last board meeting held on July 28,1999 to write down its existing paid-up share capital from Rs 46.45 crore to Rs 9.29 crore and subsequently increase its authorised share capital from Rs 55 crore to Rs 85 crore.

The paid-up capital of IPL will increase to Rs 81.81 crore after the issue new shares at par to financial institutions, banks and co-promoters on preferential basis.

BIFR had sanctioned a rehabilitation scheme to IPL in March 1995. The company had proposed certain modifications to the scheme vide its letter dated May 14,1998. After several hearings in the current year, the bench of BIFR passed the order sanctioning the modifications to the rehabilitation scheme on July 2,1999.

Under Regulation 3 (1)(j)(i) of Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 the proposed allotment of shares to the Reliance group is exempt from the application of Sebi takeover code.

According to the terms of the modified rehabilitation scheme, the Reliance group has committed to bring in funds amounting to Rs 38.37 crore within 90 days from the cut-off date of July 2,1999. In addition, it has given an undertaking to meet (i) the overrun in the scheme estimated to cost Rs 62.41 crore and (ii) shortfall in the projected cash flow.

Besides, it has agreeed to pay interest at the current lending rate in case of default by IPL, on the defaulted amounts till the defaults are cleared.

As for the existing promoters, it has been agreed upon to convert their unsecured loan of Rs 1.40 crore, outstanding on the cut-off date, from the promoters into equity at par (after reduction of existing share capital).

In addition, the balance of Rs 25 lakh payable to the existing promoters against the unsecured loans will be paid only after the entire dues of the financial institutions/banks are settled in full.

The approved scheme envisages settlement of principal amount of Rs 53.91 crore due to banks/financial insitutions by cash payment of Rs 20.16 crore and issue of equity shares at par for Rs 33.75 crore post-reduction of capital. However, all outstanding interest and other charges will be written off/waived.

The working capital loans will be repaid in full together with accrued interest. The moratorium for payment of interest-free deferred sales tax of Rs 16.44 crore is being extended from 5 year to 10 years.

The total sacrifice being made by FIs/banks and state level institutions works out to Rs 121.70 crore. Their total dues on September 30,1999 amounted to Rs 153.82 crore.

The board of IPL will be reconstituted with 9 directors-- five of whom would be nominated/appointed by promoters/co-promoters while one director each would represent the lead FI, bank, PICUP and BIFR.

The net worth of the company will become positive on implementation of the scheme by October 1,1999 and the scheme is to be implemented within 90 days from the cut-off date.

Insight

Not quite enough

The sharp reduction in import duties during the last five years has cast a shadow on the viability of smaller size plants. Recapitalising would only be able to infuse enough funds to meet working capital requirements, but additional funds would be required for making the plant size more than the minimum economic size.

The issue is whether the scheme of arrangement should be continued for the long term. One view is that the supply-demand of polyesters is balanced. The output should be easily absorbed by the market unless extra capacity comes up. However, Reliance has indicated that it intends to double its polyester capacity. After the capacity expansions, the cost economics of stand alone uneconomic sized plants like Indo-Polyfibres is uncertain.

Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.