"Waiting indefinitely for a proposal to materialise is against shareholder interest. Hence, the company will opt for a closure of the unit in the absence of a deal," said AV Birla group chairman Kumaramangalam Birla.

PC Gandhi & Associates has been appointed to do a valuation of the assets. Indian Rayon, in the event of a closure, will provide the one-time non-cash loss based on these valuations in the second half of the financial year, Birla said.

The company is also exploring alternatives like manufacturing chemical products for the pharmaceutical industry, conversion into a cement plant and sale of assets, Birla added.

The sea water business has become unviable due to a significant fall in the product prices, a substantial cut in offtake owing to a slump in thedomestic steel industry, coupled with dumping of magnesia from China.

The company has been taking various intiatives to arrest the slide in profits. The operations of the unit were suspended since December 1998 to prune operating losses, resulting in inventory reduction and cut in overheads, apart from reducing employees' wages.

Indian Rayon has also resorted to a premature redemption of Rs 200 crore worth of debentures to cut interest costs. It has also contacted around 60 parties in India and abroad, mainly from the steel and refractory industry, senior Birla group officials said.

The book value of investment in fixed assets on account of the sea water business was Rs 332 crore as on March 31, 1999. While there is possibility of a substantial loss arising from a closure, the company's reserves would be adequate to provide for the losses.

INSIGHT
Firm has little option

Indian Rayon has little option but to exit from the sea water magnesia business. The business is unviable, andthe division has been non-operational since December 1998. The company's efforts to sell the division outright, or to rope in a joint-venture partner have been unsuccessful. Under the circumstances, exiting from the business and selling individual assets appear to be the only way out. The permanent closure of the division would result in a substantial one-time loss for the company. It would, however, help improve the company's future prospects, as it would do away with the recurring losses arising from the division.

-- Sarad Saraf