The company also does not have any forward cover for its foreign currency loans totalling to around Rs 1,600 crore.

The bond issue had been made in the early nineties, but the gap was not so wide in the previous year, 1996-97. The rupee was quoting at 35.76 to the dollar on March 31, 1997, and had slipped to 39.34 a year later. At present, it is quoting at around 42 to the dollar.

In its accounts for the year to March 31, 1997, Ispat had noted that the bonds, due in 2001, are convertible at the option of the bondholders. It said: "Pending such conversion no provision has been made for the difference arising due to fluctuation in the rate of exchange which would beapplicable only to the extent the bonds are not redeemed."

The bonds are convertible into global depository receipts representing 5,72,15,169 equity shares of Rs 10 each at a premium of Rs 57 per share.

In the accounts to March 31, 1998, the value of the euro bonds, shown under the category of unsecured loans, has increased to Rs 485.50 crore from Rs 383.34 crore in the previous year.

"Exchange difference amounting to Rs 102.16 crore on the 3 per cent euro convertible bonds has been recognised in the accounts during the year," Ispat has noted in the schedules.

In case the bonds are converted into shares, "...related exchange difference will be written back in the year of conversion," the company has said.

The company posted a turnover of Rs 1,505.65 crore for the year to March 31, 1998, against Rs 1,391.05 crore in the previous year. Profit after tax dipped to Rs 55.17 crore in 1997-98 from Rs 78.83 crore in the previous year.

However, the companys profits would have been wiped out if it had madea provision for the difference arising out of the depreciation of the rupee against the dollar.

Ispat's foreign exchange earnings have been dipping since 1995-96. Financial analyst Tamal Majumdar pointed out that earnings in foreign exchange dipped to Rs 114.98 crore in 1997-98 from Rs 166.23 crore in 1995-96 and Rs 147.14 crore in 1996-97.

The company has written off Rs 14.99 crore in respect of its investments in CRB Mutual Fund during 1997-98. Ispat's investment schedule shows that the company had purchased 1,42,92,100 units of Rs 10 each in the Arihant Mangal Scheme of CRB Mutual Fund.

INSIGHT
Accounting standards need a change

For the bonds issued in foreign currency or loans in foreign currency, the decline in the value of rupee is reflected in the increased amount of debt (which is denominated in rupee terms) and no provision is made for decline in the value of rupee. If the acquisition of assets is funded via the foreign currency route, the exchange difference is capitalised.This accounting treatment is the standard one. Had it not been, it would have attracted a qualification from the companys auditors.

However, as a measure of transparency, and keeping in mind the south-east Asian currency meltdown, the countrys accounting standards need to change to disclose a companys strategy while dealing with issues like currency depreciation and hedging strategy.