As per the scheme of amalgamation, all divisions other than the investment division of 20th Century would be merged with CBL. And the investment division would be merged with TCFC Finance Ltd (TCFCF), a wholly owned subsidiary of 20th Century. Simultaneously, TCFC Holdings Ltd (TCFCH), another 100 per cent subsidiary of 20th Century, would also be merged with TCFCF.

Thus, 20th Century would be dissolved, and not wound up. As a bargain, every shareholder of 20th Century holding 100 shareswill receive 100 shares in CBL and 60 shares in TCFCF. Now, pre-amalgamation, CBL's equity base is Rs 101.25 crore and 20th Century's is Rs 17.47 crore. TCFCF and TCFCH have an equity base of Rs 10.80 crore each.

Post-amalgamation, CBL's equity will increase to Rs 118.72 crore. But there is a catch. Though CBL will have a large shareholder base due to the amalgamation, it will not become a listed company! Thus, 20th Century's shareholders turned CBL's will have to wait till the bank makes its maiden public issue of equity, for an exit route to open up. Even then, given the pronounced aversion for finance scrips in the market, it is unlikely that CBL would quote anywhere in excess of its par value on listing.

Interestingly, post-amalgamation TCFCF will have reduced its equity from Rs 10.80 crore to Rs 10.48 crore. How? In a clever play of financial engineering, equity worth Rs 21.60 crore held by 20th Century in TCFCF and TCFCH would be cancelled out on amalgamation. Only the Rs 10.48 crore of sharesallotted in lieu will become active. Consequently, TCFCF will become a listed company in which the smaller shareholders will be left holding odd lots. Besides, as per the proposal, Rs 119.51 crore of investments, Rs 1.27 crore of fixed assets and Rs 16.75 crore of preference share liability from 20th Century would be transferred to TCFCF. Simultaneously, Rs 112.88 crore reserves and surplus of 20th Century would also be transferred to TCFCF. However, the poor quality of assets and the meagre returns expected thereon from the Rs 119.51 crore investment can add no lustre to the bottomline. Of the investments, as already stated, Rs 21.6 crore equity holdings of 20th Century in TCFCF and TCFCH would be extinguished; Rs 31.64 crore of investments had a quoted worth only of Rs 7.37 crore at the end of 1997.

And the remaining investment is locked up long term in-group portfolio: Rs 19.60 crore in GMAC-20th Century and Rs 13.65 crore in CBL, from which, perhaps, only dividend can be expected over time. Add to thisgloom, the pre-amalgamation profitability picture of TCFCF and TCFCH. There is not much left for the erstwhile public shareholders of 20th Century, as the listed stock of TCFCF cannot be expected to trade beyond half of its par value.

Who then is expected to benefit from the amalgamation? A close scrutiny of the annual report of 20th Century for 1997 lets the cat out of the bag. At the end of 1997, unsecured loans amounting to Rs 202.73 crore or, over 60 per cent of the total unsecured loans were to be redeemed within a year. The cash flow statement for the year makes it clear that the net flow from operation was negative at Rs 72.42 crore. Even if one excludes the Rs 98 crore net addition to lease/hire purchase portfolio of the company during the year and re-computes the net cash flow from operations, it works out to only Rs 26 crore.

Evidently, left to itself, 20th Century would have been hardpressed to honour its huge unsecured obligations of Rs 202 crore due for immediate redemption. It would havebeen extremely difficult for 20th Century to raise secured borrowings on its asset base, and unsecured borrowings would have been out of question. Pushed virtually into a corner of near-certain winding up, 20th Century, the flagship of the group, has perhaps opted for the easy course open to it by tapping the public resources deposited with CBL to bail itself out of its impending financial ruin.

For the 20th Century's promoters, exhibiting deft footwork, the merger game is not something new. Even when they had already floated public, in 1982, 20th Century -- then known as 20th Century Leasing Ltd -- the promoters went public in 1983 with another leasing company, 20th Century Orient Leasing Ltd (TCOLL). The latter was to concentrate on small-ticket leasing while the flagship eyed the big-ticket ones. Nevertheless, for reasons best known only to the promoters, TCOLL was merged with 20th Century within two years. At that time, it was alleged that both 20th Century and TCOLL were indulging in market operationsof each other's scrip. This had severely affected the investor sentiments. Thus, when late-comers like VLS Finance (formerly Vardhaman Leasing), Kotak Mahindra Finance, Lloyds Finance, etc were ruling the roost, 20th Century was pathetically placed on the trading floor at less than five times its earnings.

In 1985, they promoted The Leasing Corporation of India (LCIL) with 15 per cent equity participation from International Finance Corporation, Washington, and 30 per cent from Bank of India. The management claimed that, while TCFCL had undertaken mid-size leasing, LCIL would be engaged in big-ticket leasing. More than 12 years have passed. To a specific query as to what has happened to LCIL, the promoters now clarify that "the proposal of joint venture with IFC and Bank of India was given up 14 years ago and LCIL has ceased to exist". However, during the premium public issue of 20th Century Kinetic Finance Ltd (TCKFL), in 1995, the offer document had listed LCIL as a co-promoter, which was to hold 24.75 percent of the equity. Yet, now we are told that the "co-promoter" of TCKFL was dead long ago! Incidentally, TCKFL is no more with the 20th Century group.

In 1990, 20th Century floated 20th Century Venture Capital Corporation Ltd, later known as 20th Century Capital Corporation Ltd (TCCCL) with equity participation from ICICI, Bank of Baroda, Asian Development Bank and Asian Finance and Investment Corporation. This company made even a liberal 1:1 rights issue in 1993, thereby enhancing its equity to Rs 32 crore. But, surprisingly, in the next year, TCCCL was merged with 20th Century, the promoter company!

Thus, there seems to be no end to the `promotion and divestment' game of 20th Century. In 1993, the group floated 20th Century Asset Management Ltd (TCAML) as a joint venture with Kemper Corporation, USA (51 per cent stake) for mutual fund operations. Four years later, in 1997, 20th Century has divested 23 per cent in favour of Zurich Insurance group. Meanwhile, TCFCL now claims to have floated a jointventure along with General Motors Acceptance Corporation for car financing. How long will this venture last? It is anyone's guess!

In the current amalgamation episode, while the response of 20th Century's promoters to the crisis might be typical of most Indian promoters, it is indeed a matter of dismay that the central bank of the country, RBI, has permitted the amalgamation without apparently examining the issues -- the escalation of NPAs, the sudden disproportion in employee-asset ratio, the clever use of CBL resources to meet the debt obligations arising out of the promoters' mismanagement etc -- in threadbare detail. The RBI, which appears to remain fastidious in all administrative matters, must understand that it is expected to perform more qualitative functions.

Arranged by Investar -- The Aarthik News & Research Syndicate