The strategy paper, prepared by chartered accountants SS Kothari & Co, has suggested the creation of two outfits -- JCT Ltd and JCT Fibres -- before April 1, 1999. The financial institutions are expected to take a decision on the proposals this week. ``We have submitted a report to the financial institutions recently, '' said a JCT official. Depending on what the institutions say, the plan could be modified and could include a complete revaluation of the assets. The company has already appointed a valuer for asset revaluation. The whole recast exercise, to be implemented in three phases, will begin by hiving off the synthetic fibre division into a separate company called JCT Fibres.This will be followed by asset sales and the merger of debtor companies (ie, companies to which JCT gave loans) with JCT Fibres. As per the plan, JCT, the residual company, will have to work out a scheme of arrangement to hive off the fibre division apart from selling off assets and reducing its equity capital (necessitated by the spinning off of JCT Fibres Ltd). JCT Fibres will be given the entire undertaking of the fibre division plus the allocated loan component. Share capital in the new company has to be allotted to shareholders of JCT Ltd followed by the conversion of secured loans and unsecured loans into equity capital and preference capital. The plan also emphasise an improvement in profitability through an infusion of funds worth Rs 10-15 crore by promoters for debottlenecking operations. The financial restructuring envisaged includes the waiver of compound interest, liquidated damages, penal interest upto the cutoff date and conversion of overdue interest and simple interest upto the cutoff date(April 1, 1999) into 15 per cent optionally fully convertible debentures (OFCDs) redeemable in 40 quarterly instalments starting from January 1, 2002. The overdue interest and interest upto the cutoff date on foreign currency loans will be rescheduled at the document rate, repayable in 20 half-yearly instalments from June 1, 2000. The restructuring has become inevitable ever since the Polysindo deal fell through. The Indonesian major rejected JCT's demand for a higher price following an improvement in the market for polyester fibre.

Soon after this, Thapars made known their intention of a radical recast to put the company back on the rails and appointed SS Kothari & Co to prepare a strategy paper. The entire exercise hinges on the attitude of the financial institutions who had recently given the green signal for debt restructuring by the cash-strapped Modern group. JCT's plan of action is modelled on the lines of the one for Modern group.

Analysts say that the financial institutions may not be willing toaccept the restructuring proposal in its present form as it contains several loopholes. IFCI is the lead financial institution for JCT. The restructuring report also mentions the severe cash crunch faced by the company and holds adverse business conditions responsible for it. It also says that there is a financial imbalance in the debt-equity structure as on March 31, 1998.