New Delhi, Mar 20: Balmer Lawrie Van Leer's rights issue could well be a case of money going from the right hand to the left. With the low market price pointing to the possibility of undersubscription, the promoters will have to pitch in and pick up the entire unsubscribed portion as mentioned in the offer document. And, as the rights issue proceeds are to be used to repay the interest bearing advances of Rs 10 crore taken from the promoters, the latter would then be repaid with their own money.Investing in Balmer Lawrie Van Leer's Rs 11.85-crore issue at a premium of Rs 5 definitely makes no sense when the scrip is quoting below par at Rs 9 on BSE. Besides, the shareholders who had subscribed to the previous rights issue in 1994 at Rs 25 have already witnessed a major erosion in their investment and are unlikely to pick up their rights entitlement now.
Already, there are 24,250 shares (out of total 6.9 lakh shares offered in 1994) on which calls are in arrears.
This means the promoters -- BalmerLawrie and Royal Packaging Industries Van Leer BV -- will have to apply for additional shares in addition to their rights entitlement. Post-issue, therefore, the promoters' stake will go up substantially from the current 61.76 per cent. For the company, the rights issue is crucial as it will fund the restructuring scheme and augment the net worth of the company. To that extent, the success of the issue is very important and the promoters will take all necessary steps to ensure the success of the issue.
Balmer Lawrie Van Leer faces a short-term capital mismatch which has been funded by advances from Balmer Lawrie and Van Leer, Singapore. The Rs 5 crore advance from Balmer Lawrie carries an interest of 18 per cent, while that from Van Leer is at Libor plus 1 per cent. In addition, Balmer Lawrie Van Leer's short-term liabilities exceed its current assets by Rs 4.02 crore. Through the rights issue, the company hopes to reduce its dependence on short-term liabilities. This will not only reduce the interestburden, but would also introduce a greater degree of flexibility in the financial structuring of the company.
The joint venture company, which manufactures steel drum closure systems (Tri-sure brand) and HMHDPE plastic drums (Valerex brand), has felt the heat of the huge interest burden. For fiscal 1996-97, the company incurred a net loss of Rs 3.08 crore mainly on account of a high interest cost of Rs 5.24 crore. In the first-half of 1997-98 the company reported a net loss of Rs 1.6 crore on sales of Rs 21.99 crore. On an equity of Rs 7.8 crore, reserves are only Rs 7.32 crore. With equity doubling to Rs 15.80 crore post-rights, there will be an earnings dilution (if the company earns a full-year profit).
Yet another cause of concern is that the company has not created a debenture redemption reserve to the extent of Rs 39 lakh in the absence of profits. Balmer Lawrie Van Leer could be in serious trouble when its partly convertible debentures (15.6 lakh) issued in 1994 come up for redemption.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
