MUMBAI, NOV 5: The `expansion' drive of Ispat Industries is in full swing despite the sluggish steel market. As part of its ongoing mega project implementation, the company, a frequent defaulter with the Maharashtra State Electricity Board (MSEB), has sought the shareholders permission to issue of preference shares or debentures of warrants worth Rs 252 crore to its promoters - the Mittals - at its forthcoming annual general meeting on November 17.The company has already run up huge liabilities to the tune of Rs 5,766 crore through secured and unsecured loans from various banks and institutions. While total secured loans amount to Rs 3,582.60 crore, unsecured loans total Rs 1,184 crore. A part of this loan is already overdue for payment. It's not one way default. The company has to recover nearly Rs 113.90 crore from various other borrowers in the inter-corporate deposit market and discounted bills."The company as well as its promoters have given an undertaking to financial institutions to recover the ICD deposits and discounted bills by December 31, 2000,'' says its Annual Report. The company has to recover another Rs 79 crore towards project promotional dues, including Rs 23.73 crore spent on a project (which has already been shelved) promoted by Central India Coal Company.Has the company been able to satisfy shareholders by its performance? The company which came out with several equity and debenture issues in the past had made several rosy promises to attract investors. When it made a convertible debenture issue in March 1997, it projected a sales turnover of Rs 4,254 crore and a net profit of Rs 742 crore for the year ended March 2000. However, it made a sales turnover (net of excise) of only Rs 1,306 and a net profit of Rs 3.67 crore. In fact, revealing the sluggish demand and falling margins in the steel sector, its gross income was stagnating in the region of Rs 1,400 crore in the last five years while the net profit fell progressively from Rs 100 crore in 1995-96 to Rs 3.67 crore by March 2000. "At least the SEBI is not asking companies now to give financial projections before equity or debenture issues," said an analyst.While the company is now going for fresh loans, the interest burden on existing loans has started hitting its bottom line. It made a net loss of Rs 46.8 crore for the second quarter ended September 2000 as against a profit of Rs 1.6 crore in the same period last year.Reason: A steep rise in interest to Rs 66.9 crore (Rs 23.4 crore) and a 181 per cent rise in power and fuel costs.There is no wonder that the company with a huge equity base of Rs 901.55 crore is now quoting at Rs 3.90 on the stock exchange. "The mega projects, big loans and equity issues have clearly failed in creating shareholder value. The market capitalisation of the company works out to around Rs 270 crore. This means a takeover predator can acquire 51 per cent holding in the company by shelling out just Rs 136 crore," said an analyst tracking the company's performance. Investors and analysts are keeping their fingers crossed. Ispat stake in IDBI, IFCIMUMBAI: Is it just a coincidence that borrowers hold equity stakes in financial institutions like IDBI and IFCI? According to the Annual Report of Ispat Industries, it holds 7.21 lakh equity shares in IDBI and 1.50 lakh shares in IFCI. In fact, Ispat's largest investment (quoted) is in IDBI. According to FI sources, this investment might have taken place when the IDBI went public six years ago. But it is a fact that IDBI's share price has never touched its issue price of Rs 130. As the IDBI share price is currently quoted at around Rs 34, Ispat has made notional losses in this investment. Ditto is the case with IFCI.
