Wielding clout
The financial institutions have for long been unsuccessfully trying to recover the money they lent to Modi Rubber. It now seems that the institutions are planning to fix a deadline for the Modis to purchase the institutions' stake. Only if the Modis fail to buy by that time, will they look at the option of auctioning the shares.All this rigmarole gives the impression that the business house carries enormous clout with the powers that be. It is difficult to fathom any other reason for the curious forbearance of the financial institutions. After all, delay involves an opportunity cost, and public funds are involved. The institutions are hopeful of recovering part of their loans along with the sale of their stake to the Modis. If they are all that keen to keep the business and if they have the resources to buy out the financial institutions' shares, there is no reason why they should not make a preferential offer to themselves in terms of the Sebi guidelines, infusing some funds into the company. If, on
the other hand, these are mere delaying tactics, there is no reason why the financial institutions or the finance ministry should agree to the terms. Modi Rubber shareholders, including the institutions, have not benefited from the Modi connection. A takeover of the company would be the best way out of the current imbroglio, besides rewarding long-suffering shareholders. To get the maximum return, the FIs should ensure that the shares are sold to a single investor, as that price in that case would include a premium for control. Modi Rubber is fast turning out to be a test case in the restructuring of the Indian corporate sector.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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