Chennai, February 23: In a volte face, cement major India Cements Ltd (ICL) has decided to come out with an equity offering aggregating Rs 150 crore to shore up its borrowing capacity. This move, after maintaining all along that its expansion plans would be taken care of by debt and internal accruals, has led to further speculation about the possibility of the company acquiring Raasi Cements.The company's board of directors on Monday approved the equity issue with a overall ceiling of Rs 150 crore. It has delegated the necessary powers to the managing director and the executive director to decide the quantum of the issue, the amount of premium and the timing of the issue in consultation with the merchant bankers.
Company officials, however added that a significant portion of the issue could be in the form of rights and the balance would be through private placement. Though they were tight-lipped as to the sudden move by the company to improve its equity base, they said the resolution passed was anenabling resolution and that the money would be used in connection with the `cement business'. What has interested the players in the market is the timing of the issue. The ICL scrip is presently quoting close to its 52-week low and if the trend in the industry is any indication, there is little scope for any significant increase in the share price, especially after the announcement of an equity dilution.
Moreover, the company had all along been saying that there will not be any dilution of equity to take care of its expansion plans `on hand' which include Yarraguntla, Visaka Cement Industries and captive power plant. Vice-president and managing director N Srinivasan had echoed this view when he met the press in November-end. He had then said that ICL had already tied up its fund requirement by way of private placement of 13.1 per cent non-convertible debentures to the extent of Rs 100 crore and the banks and the financial institutions had sanctioned Rs 300 crore assistance.
The sudden need to shore upthe net worth and also its borrowing capacity, is interpreted by the analysts as a possible move by the company to prepare itself for mounting a bid on Raasi cements. The debt equity ratio as on March 31, 1997 was 1.10 and it is estimated to be in the range of 1.51 at the end of the current financial year after considering the fresh borrowings and accretion to the reserves.
But the fact that company expects the debt-equity ratio to be in the range of 1.50 after the proposed issue indicates the possibility of further borrowing to the extent of Rs 250 crore, which they say could only be for Raasi which at current valuation could cost around that. Interestingly, the stock market has not reacted to the announcement.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
