The debentures will be in lieu of the planned $150-million global-depository receipts (GDR) issue, which has been shelved in view of the depressed markets.

The company is close to working out the coupon rate and terms of conversion. The issue is meant to part-fund its Rs 3,690-crore expansion, which will treble its refining capacity to 9 million tonnes.

"We are in the process of finalising a Rs 600-crore FCD issue. At this stage, the company cannot possibly go in for a GDR as planned," managing director Jagdeesh Mehta said. He, however, did not wish to comment on the terms of the issue "till everything was in place."

The debenture issue will be placed entirely with the institutions. None of the two promoters--neither the Aditya Birla group nor the public-sector Hindustan Petroleum Corporation--will subscribe to theissue.

Last year, the company had placed Rs 726-crore debentures equally between its two promoter groups. The debentures will come up for conversion in January next.

The move is also in line with the decision of financial institutions to bail out projects stuck in the last leg owing to the inability of promoters to raise funds from the capital market.

Mangalore Refinery had earlier in the year mooted placement of Rs 671 crore, or 30 per cent of its authorised capital, with some international investment companies or oil majors at a premium of Rs 9.26 per share over the face value. The company may not, however, go ahead with the plan. "MRPL does not wish to place its equity with strategic investors," Mehta said.

The company's paid-up capital is Rs 415.16 crore, while its authorised capital is pegged at Rs 2,000 crore. The proposed debt component comprises foreign currency loans of Rs 665 crore and rupee-term loans of Rs 1,628 crore.

The company's finished products include light distillates such asliquefied petroleum gas (LPG), motor spirit (petrol) and naphtha, middle distillates such as high-speed diesel, superior kerosene oil, aviation-turbine fuel, and heavy distillates such as furnace-oil and bitumen.

MRPL's products are covered under the administered price mechanism (APM) and are being marketed by HPCL. Sulphur, a by-product, is directly marketed by the company. MRPL's phase-II expansion is expected to be complete by November, 1999. During 1997-98, the company had processed 3.953 million tonnes of crude oil and 3.638 million tonnes of finished products.

INSIGHT

Equity dilution won't help

The deregulation policy has allowed private and joint-sector companies to source their crude-oil requirements, which is beneficial to the company. The equity dilution of Rs 726 crore as a result of conversion of debentures in December 1998 has already been accounted for. The company's financial position is reflected in not being able to create the debenture-redemption reserve. Againstthe required Rs 485.2 crore as on March 1998, the company has created a reserve of only Rs 110.33 crore owing to non-availability of profit. Thus unless the profit jumps drastically, a dividend payout is a few years away. One more equity dilution will not help shareholders either.