SIV chairman Pallonji S Mistry, who is also the chairman of ACC, along with group companies has a stake of close to 60 per cent following the company's recent 1:1 rights issue.

If talks fructify, the deal will further consolidate Grasim's leadership position in viscose stable fibre (VSF), and will give it a near monopolistic control of the industry.

It will also give Grasim access to substantial wood pulp and rayon capacities, as well as raw materials like sulphuric acid and carbon di-sulphide.

SIV has been hit in recent years due to the recession, resulting in mounting losses, while environmental problems has forced a plant shutdown for several months now.

Senior SIV officials, when contacted, declined to comment on the deal. An Aditya Birla group official denied that such a deal was on.

The SIV scrip has jumped from Rs 8.40 on December 14 on the Bombay Stock Exchange to Rs 15.70 on Thursday. A staggering 4.65 lakh shares changed hands on December 20, almost equal to the total number of shares traded in the preceeding 12 months.

The price under negotiation could not be ascertained. Going by the current market price, on a Rs 70 crore equity base, the deal could work out to around Rs 100 crore for Grasim, but it will also have to take on substantial liabilities.

Restarting the SIV plant could also require some investment by the AV Birla group flagship. Grasim's own VSF unit in Mavoor, Kerala, had also been grappling with environmental problems earlier in the year.

The deal could prove to be costly as SIV has a huge outstanding debt of over Rs 447 crore, as on March 31, 1999, including an unsecured component of Rs 368 crore.

Interest costs were a high Rs 61 crore in 1998-99. In the current fiscal, institutions have extended another Rs 60 crore towards revival of the company.

SIV recorded a net loss of Rs 106.49 crore on a turnover of Rs 241.26 crore in the last fiscal. In the preceeding year, SIV had posted a net loss of 88.59 crore.

In VSF, Grasim has an installed capacity of 2.47 lakh tonnes per annum, while SIV has a capacity of 33,000 tonnes. SIV also has 60,000 tonnes of wood pulp capacity. SIV's VSF plant was set up with technology collaboration from Lensing of Austria, the leaders in the product. Its pulp plant is closed now for most of the last 18 months.

Birla has been on an acquisition spree over the last two years through Grasim. After taking over Shree Digvijay Cement, it also acquired Dharani Cement followed by a pulp mill in Canada along with overseas subsidiaries.In the last two weeks, Birla has announced the acquisition of an IT company in the US and Madura Garments through Indian Rayon. In a group restructuring last year, Indian Rayon transferred its cement division to Grasim.