Mumbai, July 7: Times Guaranty Financials Ltd (TGF) has received an `in-principle' approval from the Securities and Exchange Board of India (Sebi) to set up an asset management company (AMC).

The non-banking finance company has decided to set up the AMC with an initial paid-up capital of Rs 15 crore. TGF is currently in talks with a number of foreign companies for a possible tie-up. The AMC is, however, expected to start operations only in the next fiscal.The non-banking finance company also proposes to set up a broking outfit with a paid-up capital of Rs 10 crore. The OTCEI card which is currently held by TGF will be transferred to the proposed wholly-owned subsidiary.The funds-Rs 25 crore-that would be needed for setting up both the subsidiaries will be brought into TGF by way of equity. This will take up the paid-up capital of TGF to Rs 43 crore. The finance company, which posted a net loss of Rs 43.53 crore for the year ended March 31, 1997, has seen its net worth eroded to Rs 6 crore from its original equity base of Rs 75 crore. The company has received a fresh infusion of Rs 6 crore from Bennett, Coleman and Company, through a preferential allotment which has helped it overcome the current funds crunch.

Senior executives at TGF are, however, hopeful of turning the corner with a net profit during the current year.

The company has accumulated losses to the tune of Rs 50.23 crore. The loss that the company posted in 1996-97 was mainly on account of the huge amount of non-performing assets (NPAs) it had to provide for.

Going by the Reserve Bank of India's regulatory norms, the company was required to provide for Rs 25.68 crore on account of NPAs. However, as a prudential measure, TGF has provided for an additional Rs 22.96 crore, which has taken the total NPAs provided for to Rs 48.64 crore. According to company sources, the huge provisioning was called for "based on the degree of risk inherent in the transactions".

After burning its fingers in fund-based businesses like auto finance, TGF has now decided to concentrate only on fee-based business. The company proposes to do this by providing manufacturing companies with effective techniques to manage their production systems. TGF has also repaid all its bank borrowings amounting to Rs 120 crore which has reduced its debt-equity ratio to a great extent.The company plans to operationalise its role in facilitating allocative efficiency to corporates.

TGF will do this by enabling asset-liability management through treasury and risk management and asset creation through advise on project finance.TGF will also help enhance the asset utilisation of corporates by giving them advise on working capital and operational finance management. It will also assist corporates in asset transfers through advise on mergers, acquisitions and privatisation.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.