The relief package, worked out with the idea of evergreening the account (to keep it out of the defaulters list) being proposed by the institutions is well beyond the Reserve Bank guidelines and make a mockery of established norms. Flex, promoted by Ashok Chaturvedi, had borrowed nearly Rs 600 crore from banks and FIs knowing fully well that it would not be able to meet its obligations -- defaults to FIs and banks are estimated to be Rs 200 crore -- given the unsustainable debt burden and over-capacities inthe industry. While the projects of the company have incurred huge a cost overrun, FIs are now planning reschedulement of loans, interest waiver and so on. As per the plan, FIs have proposed to reduce to interest rates from 17-18 per cent to 3-5 per cent in the initial years. As a result, interest liability on long-term loans which would have been Rs 130 crore in the normal course would come down to an incredible Rs 18 crore.

They have also proposed waiver of compound and penal interest coupled with zero based funding of overdue interest. While repayment plan would stretch over a period of 13 years, promoters are not required to bring in any funds. The RBI guidelines stipulate that the promoters contribution should be a minimum of 30 per cent of the requirements of funds including sacrifices.The `bail-out' plan proposed by the institutions would entail a sacrifice of Rs 356 crore. These include waiver of penal and compound interest of Rs 6 crore, reduction in interest upto 2002 of Rs 190 crore and zerobasing of simple interest of Rs 170 crore. This sacrifice comes on top of the decision of FIs and banks to acquiesce over-capitalisation of projects and abdication of responsibility in usage of public money.

The project implementation track-record of Flex Industries is also curious. While competitors have set up capacities at an investment of Rs 75,000 per tonne, Flex investment cost in its PET project at the same time has been Rs 1.35 lakh per tonne. Given a capacity of 24,000 tonnes, the over-capitalisation in this project alone is Rs 145 crore. In its BOPP fim project, against an investment cost of Rs 60,000 per tonne of its main competitor, Flex Industries' capitalised cost is Rs 83,000 per tonne. This reflects an over-capitalisation of Rs 35 crore. The cost overrun in the laminates project works out to Rs 60 crore. In all, the excess capitalisation in 3 projects works out to Rs 240 crore.

It is really surprising that institutions have not only thought it necessary to insist on keeping costs withinplausible limits but has willingly lent huge sums to over-capitalised projects whose viability is questionable. And now Flex has embarked upon setting up a third film line at an estimated project cost of Rs 125 crore. However, it is unable to proceed further in the absence of funding arrangements.

Similarly, S B Billimoria, auditors of the company, has qualified the accounts of the company on several counts including capitalisation of revenue expenses, under-provisioning and so on. It has said no provision has been made in respect of unrealisable equity investments and loans and advances to group companies of Rs 50 crore. However, a faxed questionnaire to the company did not elicit any response.

ICICI, which has made a study on the company, has sought to attribute the financial mess of the company to market forces. However, it may noted that some of the Flex's competitors are running their companies profitably. As per the ICICI Appraisal Memorandum, the company has made a loss of Rs 42.23 crore for theperiod ended June 1998. Given the magnitude of the problems, Flex has extended its financial year from June to December and has ceased to publish quarterly results as required by the listing guidelines. The market capitalisation of Flex Industries has dropped by 900 per cent to around Rs 36 crore from Rs 360 crore in the last three years.