New Delhi, May 8: Abhishek Spinfab Corporation's initial public offer is likely to devolve on the underwriters. The Trident group company has so far been able to mop up only Rs 3 crore against the target amount of Rs 19.86 crore. Says a senior official of the company, ``The response to the IPO has been as per the prevailing market condition. In a falling market, there have been few takers for our IPO and there is no doubt that the issue will devolve on the underwriters.''The issue closed yesterday (May 8) and the exact subscription figures are not yet available. Company sources said till noon they had received only Rs 3 crore and were expecting to rake in Rs 2-3 crore by late evening. This means that around Rs 14-15 crore would still devolve on the underwriters -- IDBI, IFCI, ICICI, LIC, UTI and IFCI Financial Services. The financial institutions had underwritten the entire IPO of Rs 19.86 crore.
The poor investor response to the IPO is understandable. The Trident group flagship, Varinder Agro Chemicals,has been quoting below par on the Mumbai Stock Exchange since late 1997. In fact, for most part of 1997, Varinder Agro was trading below par. Financially, too, the company has not fared well. For the year-ended December 1997, net profit fell drastically from Rs 7.07 crore to Rs 3.36 crore mainly on account of the depressed conditions in the paper industry.
Two other group companies, Abhishek Industries and Trident Alco-Chem, are also trading below par. Abhishek Industries, which manufactures cotton yarn, has not fared well financially. For the year-ended December 1997, net profit has fallen from Rs 4.52 crore to Rs 3.96 crore. Besides, Abhishek Spinfab's huge equity base of Rs 56 crore (post-IPO and preferential allotment) could translate into low earnings for its shareholders.
However, the poor investor response will not affect Abhishek Spinfab's cotton yarn processing and terry towel manufacturing project as it has already gone on stream. Although the prospectus said the objective of the issue was topart finance the Rs 144-crore project, the real aim was to repay old debts and fund the working capital requirement. As most of the loans have been taken from IDBI, IFCI, ICICI and LIC, these institutions could actually be converting their debt into equity (as a result of the devolvement). ICICI and IDBI will have to bear the major brunt of the devolvement as they had unwritten the largest amount of Rs 5.75 crore and Rs 5 crore, respectively. Interestingly, IDBI and ICICI (together with SBI) had also sanctioned a bridge loan amounting to Rs 14.5 crore to Abhishek Spinfab.
The IPO had hit the market when the bull-run was at its pinnacle, but even that failed to enthuse investors who have clearly given a thumbs down to the first public issue of the current financial year.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
