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L&T to redeem 7-year bonds in 1999
Dwijottam Bhattacharjee
Mumbai, Dec 28: Diversified corporate conglomerate Larsen & Toubro Ltd has decided to exercise its call option on its secured redeemable bonds issued last year at the end of the third year, that is, 1999.It has also decided to hold on and not go ahead with a proposed 10-year international debt-paper issue, even though it has already appointed a lead manager and arranged underwriters. The postponement is due to the financial markets collapse in south-east Asia. If market conditions improve, and if the tenure of the currently-valid government permission expires, L&T expects no problems with a renewal of permission from the government. The company has already funded its capital expenditure of Rs 1,500 crore for 1997-98 and 1998-99. The spending is largely on implementation of the two cement plants coming up in Gujarat and Tadpatri in Andhra Pradesh. Caught unawares by a sudden slide through the last half year in interest rates, the engineering major has decided that the best way to get out of a high-cost
debt liability is to redeem the investors' bonds within the shortest period allowed under the terms of the mega Rs 500-crore issue last year, which included a Rs 350-crore placement portion. L&T issued four sets of bonds: regular return bonds, FD Plus bonds, early gain bonds and deep-discount bonds. Only the regular return bonds, with a full tenure of seven years, can be redeemed at the end of the third year. These were priced at Rs 2,500 each, and the interest rate on them was 16.75 per cent payable half-yearly or 17.5 per cent payable annually, at the option of the bondholder. Deep-discount bonds, which have a full tenure of 11 years, have call option alternatives at the fifth and seventh years.L&T was one of several large deep-discount bond issues made by financial institutions and companies, including the three major development financial institutions IDBI, IFCI and ICICI, as well as the country's largest private sector steel company, Tata Steel. It is believed that most of last year's deep-discount
bond issuers will exercise their call options, and not wait for the full length of their tenures, which exceed two decades. The company has already gone in for alternative lower-cost borrowings of around Rs 400 crore this year in three tranches of private placement, and reduced its average cost of funds to between 14 per cent and 14.5 per cent.With its major activities focused on engineering, procurement and construction, as well as cement, Larsen & Toubro has faced a difficult year because its growth is linked to the economic engine, which has been spluttering. The company has sought to tackle a year of slowing GDP growth (estimated 6 per cent against 7.1 per cent the previous year) by continuing with a five-year trend of diversification of its services. Currently, the major projects on hand include a Reliance Industries refinery; a road project (a bypass) in Tamil Nadu; a bridge over the River Narmada; fabrication of equipment for Reliance Petroleum; some public-sector projects, including
petroleum-venture platforms; and captive power plants. The management has consciously positioned the company in a number of segments to deal with a recession in particular areas. The company has acquired expertise in hydrocarbons, oil and gas power, process industries (cement, fertiliser, steel, chemicals and petrochemicals), transport and urban infrastructure.
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.
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