After several operational and strategic initiatives, including aggressive cost reduction, manpower rationalisation, branch rationalisation and business portfolio restructuring, Cholamandalam DBS Finance Limited, a joint venture between Murugappa gruop and DBS of Singapore, has decided to restructure its capital to take care of the losses arising out of loans as well as to infuse fresh equity.
As part of the exercise, the board, which met on Friday, has allowed the creation of special standard assets provision of Rs 200 crore to address the possible higher delinquencies, in the context of the overall economic slowdown, setting off loan losses/write offs to the extent of Rs 100 crore and adjusting impairment loss in investment in one of the subsidiaries of the company – DBS Cholamandalam Distribution Limited – for an amount of not exceeding Rs 23.53 crore, said a communique here.
In order not to impact the current earnings due to potential impairments caused by an extraordinary turn of events in the last few months, the proposal permits the setting off the entire adjustments, aggregating to Rs 232.53 crore out of the balance standing to the credit of share premium account of the as of March 31, 2008, the statement said. The initiatives are expected to help the company reduce its cost base significantly and pave the way for improving the financial performance going forward, it added.
Earlier, the company had raised Rs 135 crore by way of conversion of warrants into equity shares. To further improve the capital adequacy ratio and to meet the operating requirements, both the promoters have decided to bring in a fresh capital of Rs 300 crore together in the form of fully convertible cumulative preference shares and this is expected to be infused before March this year, it said further.
Due to the overall financial meltdown and the liquidity problem, long term funds of Rs 1,000 crore were infused into the company in the last three months to augment the liquidity and to corrent the ALM. The company said that the profits were declined primarily due to higher delinquencies in the personal loan portfolio and hence decided to not to focus on this segment. However, the company will continue to focus on vehicle finance, home equity loans and business finance, the statement further said.