VST proposes to issue preference shares to persons other than the company'sshareholders. For this, it is seeking the shareholders' approval at theannual general meeting scheduled to be held next month.

Market analysts, however, see the move as an attempt to provide BAT abackdoor entry. Considering that the company has proposed to convert Rs23.81 crore taken from BAT as advance subscription to last year's abortedrights issue into external commercial borrowings (ECB), which technicallycan also be paid back through preference shares.

FIPB may not have any objection to the new proposal, considering preferenceshares will not entail any voting rights to the new shareholders, theyanalysts say.

To facilitate this, the company is increasing the authorised capital to Rs100 crore, divided into 5,00,000 equity share of Rs 10 each, and 50,00,000preference shares of Rs 100 each.

Its present equity stands at Rs 15.44 crore. The issue's proceeds areproposed to be used for present and future long-term requirements.

The shareholders' approval to a special resolution making the issue possibleis being sought to satisfy the provisions of section 81 of the CompaniesAct. As per the draft resolution, the preference share is to be subscribedin ``rupees or foreign currency by such person or persons whether or notshareholders of the company as the board may in its absolute discretiondecide, including one or more of the members, promoters, debenture holders,employees, financial institutions, institutions, banks, mutual funds,foreign investors, non-resident Indians, or overseas corporate bodies.''

In 1997, VST had intended to raise funds worth Rs 75 crore through a rightsoffer of fully convertible debentures of Rs 135 each. As the company couldnot obtain FIPB's approval for the promoters to take the unsubscribedportion of the rights issue, VST could not go for it.

Following the delay in the board's clearance, VST had applied for theconversion of Rs 23.81 crore received towards advance subscription moneyfrom BAT into securitised ECB. It has also raised Rs 11.85 crore by way ofECB from Citibank, Bahrain, repayable at the end of two years.