MUMBAI, March 1: The promoters of Indian Seamless Steels & Alloys will seek to bail out the company from a negative reserves crisis by pumping in an emergency Rs 41 crore through an Industrial Development Bank of India-approved preferential allotment.The promoters will be picking up a vital four crore shares in the firm at par. The new shares of the company, beleaguered by a totally botched backward integration effort from the Indian Seamless banner, are still priced way above the market value of a maximum of Rs 5 over the last 52 weeks.
The equity infusion, drawn up as per the rehabilitation package of the Industrial Development Bank of India (IDBI), will involve issue of 4.10 crore shares of Rs 10 each at par to promoters and group associates.
The preferential allotment will raise the stake of the company's promoters, who as per the latest available figures hold around 38 per cent equity along with other associate companies. The company has an equity base of Rs 59.23 crore.
Indian Seamless Steelshas been dodging very difficult times and made a net loss of over Rs 22 crore in 1996-97. The scrip is currently quoting at well below Rs 3, and the company had a 52 week high/low of Rs 5 and Rs 2 respectively.
The preferential allotment, as dictated by the financial institutions who have close to 8 per cent holding in the company, puts the onus on the promoters to play a crucial role in bringing in the much-needed funds. ``The promoters have to demonstrate that they are serious about the company's revival, and a preferential allotment at par is the only way they can prove that,'' said a highly placed institutional source.
In fact, the nod for a preferential allotment to promoters in this case is contrary to the general FI stand, as the institutions have on many occasions voiced their opinion against this mode of financing where promoters tend to take advantage of the mechanism.
``But in this case, the ruling prices are far below the scrips par value, and we felt that promoters need to take pains if itbullish about its long-term prospects,'' the FI sources said.
Indian Seamless, engaged in the manufacture of carbon steel, alloy steel and special steel rounds, had financed its 1.5 lakh tpa project through a 14 per cent partially convertible debentures in 1992. The company subsequently commissioned a continuous rolling mill three years ago.
The company's performance has been quite lack-lustre over the years as it incurred losses for the last three years, except in 1995-96 when it made a paltry profit of Rs 9.64 crore. The company sells over 50 per cent of its output to another group associate engaged in converting the steel rounds into seamless pipes.
The company's reserves have already turned negative at Rs 22.55 crore as on March 1997, and the shareholders' funds stood at Rs 36.68 crore. The shareholders' funds, in fact, have eroded substantially over last year's fund base of Rs 59.61 crore. The high interest burden of Rs 50 crore last year had a very adverse impact on the company's finances, and thelosses surged despite an operating profit of Rs 37.52 crore. The company's interest outgo in 1995-96 was close to Rs 40 crore.
India Seamless had sought to integrate backward in its steel pipes business (in which it was a market leader at one stage) by setting up a facility for steel rounds, the basic raw material for the manufacture of such pipes. But project implementation delays and market slowdown forced serious problems on the company.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
