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Tisco decides against reserve creation for bonds redemption
Arijit De
MUMBAI, January 18: Tata Iron & Steel Co (Tisco), faced with an outflow of over $98 million in 1999 owing to non-conversion of foreign currency convertible bonds (FCCB) issued by the company in 1994, has decided not to create a redemption reserve to spread the liability.The actual outflow could be well over Rs 400 crore if the rupee depreciates further over the next 12 months. The coupon on the bonds are a flat 2.25 per cent, the lowest contracted by any domestic company issuing FCCBs in international markets. Tisco's vice-president and director (finance) Ishaat Hussain said: "We will not set up any sinking fund for redemption of the bonds as our cash flow is strong. The repayment will be treated as normal loan repayment, which will be paid out of cash acrruals." The company's cash flow in 1998-99 and 1999-2000 is expected to improve on lower interest cost and lesser derpeciation charges. This, despite an increased outflow on greater cost of freight, which is owing to higher diesel prices. The company
had raised $100 million through FCCBs in February 1994 to fund its ongoing modernisation programme in Jamshedpur. The five-year bonds, slated for final conversion on March 3, 1999, are optionally convertible at Rs 291 per share. However, as Tisco's scrip ruled below half the conversion price for most of 1997, there was no fresh conversion by bondholders during the current fiscal. Given the downturn the steel industry is facing, analysts do not expect the Tisco scrip to move to anywhere near the conversion price of Rs 291 by the time the bonds come up for final conversion. The recent crisis in south-east Asia, a major export market for domestic steel producers, will only make matters worse for the country's steel companies, analysts add. A meagre $1.9 million out of the $100 million worth of bonds outstanding have been converted till September 30, 1997, according to Tisco's latest figure. Only 1,904 bonds of $1,000 each have so far been converted into equity shares of Tata Steel till September 30 this
year. The bonds are convertible at the option of the bondholders into global depository receipts (each GDR representing one ordinary Tisco share) between March 31, 1994, and March 3, 1999. The bonds, 1904 in total, have been converted into 205,251 ordinary equity shares of the company, resulting in a Rs 0.20-crore rise in its equity base. Full conversion would have inflated Tisco's paid-up capital - which stands at Rs 367 crore - by about Rs 4 crore.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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