Lenders to Gitanjali Gems are reluctant to heed a request from the company to convert a part of the non-fund exposure into loans. The consortium of PSU bankers which met to assess Gitanjali?s financial position was hesitant to add to its loan exposure, a senior banker told FE. The promoter has offered to give banks additional collateral, in the form of property, in order to secure more funding but bankers are being cautious.
Meanwhile, as other sources of funding seem to be drying up, Gitanjali is looking to mop up money through public deposits. In an advertisement on Wednesday, the firm invited participation in its fixed deposit scheme and is offering an interest rate of as 11.5% for a one-year deposit of R25,000. The Gitanjali stock lost another 5% on Wednesday, falling to R202.85; the company?s business has become more vulnerable thanks to the government?s changes in policy relating to gold imports. The stock has plunged nearly 68% since May 31, wiping out nearly half the company?s market capitalisation.
?There is stress on all companies in the jewellery sector due to the change in the government?s rules on imports of gold and the mark-to-market hit on gold holdings,? explained a senior banker.
While the Gitanjali account remains a standard account, bankers are monitoring it closely. ?We met with the bankers due to the recent changes in norms but haven?t sought a restructuring yet,? sources within the company said. They added, however, that whatever leeway is being sought is within the existing limits of R4,000 crore. At the end of March 31, 2013, Gitanjali Gems had a gross debt of R5,000 crore at an average cost of about 8%.
Bankers to the company include Allahabad Bank, Andhra Bank, Bank of Baroda and Bank of India. Most of the loans are understood to be backed by fixed deposits as collateral.
The volatility in gold prices and the significant change in funding norms for gold imports has forced bankers to take stock of their exposure to large gems and jewellery makers like Gitanjali.
Over the past month, policymakers have taken several steps to limit soaring gold imports. These include raising the import duty on gold by 8%, raising the cash margin for imports for domestic consumption to 100% and prohibiting any kind of credit from suppliers or bullion traders for imports.
The company?s board had approved a plan to raise around $250 million through foreign currency convertible bonds (FCCBs) in February at a conversion price of Rs 570, but the issue did not find many takers.
The fall in the stock price has led to some investors, such as Macquarie, invoking shares pledged to them by the promoters. Around 30% of the promoter?s shares were pledged and 15% of total shares in the company are currently pledged. For the year ended March 31, Gitanjali Gems reported a net profit of Rs 265.16 crore, up 2.6% from a year ago.