Tinplate in talks with FIs for cut in interest rates

Arindam Sinha

Jamshedpur, Aug 14: Tinplate Co of India Ltd (TCIL) expects to save around 20 per cent on interest outgo, once the financial institutions (FIs) agree to bring down the interest rates on term loans they released to the company. Negotiations for a second round of financial restructuring are going on between the FIs and TCIL.

TCIL has been reeling under a heavy interest burden. During the last financial year to March 31, 2001, it had to pay Rs 37.61 crore (Rs 24.01 crore) as interest charges on its term loans from the FIs at rates ranging between 17 and 18 per cent, compared to the current prime lending rate (PLR) of around 12 per cent. “We are paying interest rates between 17 and 18 per cent, averaging around 17.3 per cent, which has made our turnaround plans fragile,” a company source said. TCIL is also negotiating with its bankers for reduction of interest rates to the current market levels.

Asked what interest rate the company is negotiating for, the sources said it could be 50 or 100 basis points above the PLR. The company is confident that the FIs would suitably lower their rates to the current levels.

“The disproportionately high debt servicing cost is eating up 65 per cent of the gross profit,” managing director BL Raina had said some time ago.

Last financial year, TCIL ran its cold rolling mill (CRM) at 121 per cent capacity and its electrolytic tinplate (ETP) unit at 116 per cent capacity, with a matching highest-ever annual sales of 1.08 million tonne of tinplate, including exports. This appears to be the beginning of a robust revival trend.

For the first time in recent years, the company earned a pre-tax profit of Rs 45 lakh in the first quarter of the current financial year, compared to a loss of Rs 1.26 crore in the corresponding quarter of last financial year. Sources in TCIL said the company has already held about four/five meetings with ICICI, the lead institution, on the issue of lowering of interest rates.

“The FIs have begun to believe that the company can be supported, as it is fairly stable now and is not riding piggyback on Tata Steel,” a senior official of the company said.

Sources also said that once ICICI is convinced about the rate cut, the others are expected to follow suit. Asked how soon the financial institutions are expected to agree to the cut in interest rate, a source said, it should definitely be by the end of the current financial year. TCIL, in order to get back to shape, had in its first phase of financial restructuring (from September 1, 1999 to September 30, 2000) already converted FIs’ long-term loans of Rs 112.33 crore (including Tata Steel’s trade dues of Rs 66 crore) into non-cumulative optionally convertible preferential shares.