Silvassa Yarn & Investments, an Ambanis' group company, will buy out Raymond's stake at Rs 5 a share and subsequently make a 20 per cent open offer to shareholders of Raymond Synthetics, leading to an outgo of another Rs 12.4 crore.

As per Sebi guidelines, the open offer has to be at the same price, which is less than half the ruling market price of around Rs 11.

Commenting on the price, a Raymond official said: "The market price is not the only determining factor. One has to consider the fact that the company's net worth at Rs 34.85 crore has almost got wiped out."

He added that loans from group companies, amounting to a whopping Rs 129 crore, will be paid back in the form of debentures "through several tranches over the next few years". He did not wish to detail the arrangement.

Raymond Synthetics has an outstanding debt of over Rs 524 crore, as at March 31, 1999, which includes institutional loans of Rs 199.84 crore and forex loans of Rs 115.67 crore, and the loans from group companies.

The Rs 437-crore Raymond Synthetics had an interest burden of Rs 48.3 crore last year and negative reserves of Rs 89.31 crore till last fiscal-end.

The move will not only augment Reliance's PFY capacity by 30 per cent, catapulting it to the position of the fifth largest PFY producer in the world, but will also cause a temporary reprieve to the cash-strapped Raymond group, which is grappling with a severe downturn that has hit all its group companies.

The Rs 1,294-crore diversified flagship Raymond has an annual interest burden of over Rs 112 crore, and has put its cement and steel units on the block to raise funds.

Raymond Synthetics has been defaulting on loan repayment for over a year and had sought institutional approval for payment reschedulement. The institutions, it is learnt, had then put pressure on the Singhanias to sell out.

Reliance would utilise the newly acquired polyester capacities under a long term conversion agreement, in which it would supply the basic raw materials (PTA and MEG) for the entire polyester capacity of Raymond Synthetics.

With the addition of the new capacities, Reliance's annual capacity is slated to increase from the current 228,000 tpa to around 300,000 tpa. This is the first major instance of expansion of Reliance's PFY capacity.

Raymond Synthetics is the fourth largest polyester producer in India with capacities to produce 66,000 tpa of PFY and 8,000 tpa of polyester chips.

In terms of the domestic market, Reliance's market share would further increase from 25 per cent to 32 per cent.

Reliance's latest acquisition reaffirms its plan to double its polyester capacity over the next three years and emerge as one of the top three polyester producers in the world.

The domestic PFY capacity is highly fragmented with 38 producers currently, and Reliance's move marks a step towards further consolidation in the fragmented structure of the industry.

Over the last few years, Reliance has consolidated its polyester staple fibre (PSF) capacities by acquiring 30,000 tpa from ICI India, 24,000 tpa from India Polyfibres, an RPG group company, 43,000 tpa from JK Corp.

As more than 50 per cent of Raymond Synthetics peak net worth has be eroded in view of accumalating losses amounting to Rs 89.31 crore, the provision of Sick Industrial Companies Act, 1985 has become applicable on the company.

Insight

Big gain at small cost

The dream run in the Raymonds Synthetics stock has finally ended with the acquisition news out in the market. There is very little in the deal for Raymond Synthetics investors, considering the kind of agreement that has been entered. Reliance will utilise Raymonds capacity under a long term conversion agreement in which it will supply the basic raw material, PTA and MEG. Reliance on the other hand has a lot to gain from the deal as by investing only Rs 22.33 crore its capacity will increase by 30 per cent. Not only will the acquisition result in an increased market share, more importantly there will be one big player less in the market.

Shishir Asthana