New Delhi, Mar 13: Hit by high interest burden, SRF Ltd is embarking on a major financial restructuring exercise. The company is in the process of replacing high cost debt with low cost funds. This will give the company some financial leverage and may help it save on interest cost. SRF is repaying long-term debt in the form of term loan and debenture liabilities to the tune of Rs 209.08 crore.As part of its low cost resource mobilisation programme, the company is also tapping its shareholders with a Rs 47.67 crore issue at a premium of Rs 10. The 3:5 rights offer is for both the equity holders and the preference share holders. After this offer, the company's equity will jump from Rs 39.05 crore to Rs 63.56 crore.
It is an open question how the company would be able to meet its huge debt liabilities, especially when it is facing a severe financial crunch. In fact, it remains to be seen whether SRF will succeed in raising the loan component of around Rs 171.55 crore. Even if it succeeds in doing so, hugeinterest burden will reduce its future EPS. In the absence of a major jump in turnover, return to the shareholders will be an uphill task. Considering all this, the offer price of Rs 20 seems to be on the higher side.Besides the rights issue, the fund requirement is being arranged by divestment of equity holding in SRF Finance to the tune of Rs 32 crore, loan of Rs 20 crore from GE Caps (India), Rs 108 crore as foreign currency loan from ICICI and IFCI and around Rs 46.51 crore through internal accruals.
Of the funds to be raised (total requirement is Rs 253.55 crore), Rs 12 crore is earmarked for capital expenditure, Rs 20.44 crore for investment in SRF Overseas Ltd and Rs 12.03 crore for working capital requirement. The balance amount is for meeting debt obligations.
The company is repaying its Rs 25 crore loan to Global Trust Bank which carriers a high rate of 21 per cent. It is to be repaid in 12 quarterly installments ending year 2000. Another term loan of Rs 20 crore is to be paid to Hong Kong Bank,the first installment of Rs 10 crore has already been paid in February this year and the second is due in December. The company also proposes to repay Rs 17.8 crore to several institutions like ICICI, PNB, Canara Bank, State Bank of Saurashtra and others.
In February, 1998, the company has redeemed non convertible debentures worth Rs 30 crore of the total planned amount of Rs 53.37 crore. The debentures with a tenure of 18 months carried a coupon of as high as 18 per cent and matured in February. The company is also planning to repay inter-corporate deposits of Rs 92.91 crore and has already repaid Rs 34.94 crore.
One of the important products manufactured by SRF is nylon tyre cord yarn/fabric (40 per cent market share). Recently, the company took over Ceat's nylon cord manufacturing unit for a total consideration of over Rs 300 crore. The other core business includes fluorocarbon refrigerant gases and fluorine chemicals.
As promoters could not repay some of the loans against the pledged shares, theirstake has reduced to a low of 18.89 per cent. The promoters are willing to subscribe to the unsubscribed portion of the rights issue, if any. SRF Ltd has also roped in ICICI for underwriting the rights issue to the tune of Rs 5 crore.
