Investors, FIs lose heavily in PAL-Peugeot

Ditto is the case with financial institutions. After extending loans of nearly Rs 194 crore in 1994, institutions led by ICICI have now woken up to the fact that the company was not in a position to pay back even the interest charges. Institutions, as like the investors, were taken for a ride by the multinational tag, background of the promoters and the rosy projections made by the company. The same institutions later also allowed Premier Automobiles to transfer the assets of PAL – the parent company – to a new joint venture floated with Fiat of Italy.

When PAL-Peugeot came out with a public issue in 1994, it had projected a turnover of Rs 987.27 crore and a net profit of Rs 27.55 crore for 1997. Investors were attracted by this projection and the company could mobilise Rs 230 crore through the issue. "The PAL-Peugeot project will go down in the history as a mega project whichhad gone sick within two years after its inception. Now the promoters don’t want to run the company. Even potential buyers who initially showed some interest in acquiring the company were shocked by the mismanagement in the company," said an institutional source.

The company was recently forced to auction the cars used by the French expatriates to pay the salaries of the staff. Many middle-level managers of the company who have seen the writing on the wall have started migrating to other auto ventures. Even customers who bought Peugeot vehicles are also worried. With the company stopping production of Peugeot models, they are worried about the availability of spare parts in the future.

Brokers and investors complain that the performance of such companies was one of the reasons for the depressed state of the capital market. The company which raised Rs 230 crore from the public could not even perform for three financial years.

Auditors have picked holes even in the balance sheet for the year endedSeptember 1996 – the latest available. In the auditor report, the auditors have mentioned that the company is in the process of reconciling amounts payable to and receivable from PAL with Premier Automobile’s account books. In this transaction they have mentioned dues of Rs 16.80 crore and Rs 7.02 crore in the inter-group transactions. Pre-operation expenses of Peugeot 309 till the beginning of commercial production upto October 1995 was also added to PAL-Peugeot’s account. Similarly, the fixed assets acquired from PAL under the slump sale agreement have also been claimed to be valued by an "independent approved valuer". The net effect is that the company incurred a loss nearly Rs 100 crore within few years of operations.

A glance at the balancesheet also proves that the promoters were not making provisions even for some of the excise dues. While the raw material cost shot up substantially, the public issue expenses amounted to a whopping Rs 15.36 crore. The advertisement expenses for the new car costanother Rs 3.12 crore. Even there is no trace of the funds (Rs 136 crore) raised by NCD issue of 15 per cent partially convertible debentures issued. The equity base of the company reached Rs 262 crore mainly through debenture conversion in two phases till September 1996.

The role of institutions in converting the debt into equity is also astonishing since the company started facing problems during this period due to labour problem. Now the prevailing legal mechanism and institutional apathy provides amble scope for such promoters to go scot-free and apply for liquidation through the BIFR route. Investors who have put money in the public issues have never been happy because the share price has touched an all time "high of Rs 10.50" in 1996 and ever since it has been declining almost every day.