KOEL advances shoot up by Rs 130 cr in 1 year

MUMBAI, FEB 21: Kirloskar Oil Engines Ltd (KOEL), belonging to Pune-based Kirloskar group, has sought shareholders' permission to go for an ...

MUMBAI, FEB 21: Kirloskar Oil Engines Ltd (KOEL), belonging to Pune-based Kirloskar group, has sought shareholders’ permission to go for an institutional loan of Rs 25 crore at a time when the company has been making liberal advances. Total loans and advances of KOEL to group companies shot up by Rs 130 crore to Rs 172 crore as on March 31, 1997 from Rs 42.68 crore in the previous year.

As per the KOEL balance sheet, loans and advances recoverable in cash or in kind or for value to be received is a whopping Rs 97.6 crore out of which around Rs 26 lakh is due from the senior management. The balance money is due from all group comapnies which have huge accumulated losses. While the company earned a paltry Rs 6.6 crore as dividend and interest income from these heavy investment in group companies, KOEL’s interest outgo for the loans and advances taken from banks and institutions is also high.

KOEL has a huge investment of Rs 86.6 crore, mainly in group companies some of which are in red. It has gained adividend and interest income of Rs 6.6 crore only from this investment. Two overseas subsidiaries Indo-Malaysian Engineering Co and Kirloskar Industries (Phils) Inc are in liquidation. On the other hand, the company has showed an other income’ of Rs 246 crore in the last two years.

When contacted, K R Chandratre, company secretary, explained that “loans and advances are not unusual in a company of our size since most of the loans and advances are arising out of commercial transactions and also loans given to employees and others. Investment in other companies is a common phenomenon in the Indian scenario, inasmuch as new companies are always promoted by an existing company.”

KOEL has already made advance payment for investment in the Rs 45 crore preference shares of Kirloskar Ferrous Ltd, a chronically sick group company in which it had Rs 15 crore equity stake. KOEL also gave a huge loan to Shivaji Works Ltd, again a sick group company, which has reported a loss of Rs 47 crore in its 17-month periodannual report on an equity capital of Rs 3.60 crore. The total accumulated loss carried forward by this firm is Rs 61 crore.

KOEL has called for an extraordinary general meeting on February 23, 1998 to seek shareholders nod to invest Rs 1 crore in the equity shares in the share capital of a new company to be incorporated by the name Kirloskar Briggs and Stratton Power Equipment Pvt Ltd and to determine the actual amount of investment in this new company. The EGM will also seek nod to borrow Rs 25 crore from financial institutions for working capital needs.

“Why does the company need Rs 25 crore for working capital and financial restructuring when it already has a huge cash liquidity of Rs 235 crore made out by sale of its investment in shares. This is over and above its outstanding loans of Rs 314 crore, reserves and surplus of Rs 182 crore on a small equity of Rs 17.2 crore,” asked one shareholder. “This (fresh loan) is part of the exercise to reduce interest burden by replacing high cost borrowingsby low cost ones. Giving particulars of utilisation of funds by a firm is difficult,” said Chandratre. It may be recalled that the finance ministry has initiated an enquiry into the huge interest free advances of JCT to group companies. While JCT extended interest-free loans to group companies, it also took loans from institutions at high interest rates.