SOL Pharma raises Rs 66 crore from FIs, banks despite defaults

MUMBAI, MARCH 14: It's a curious case of a company raising more money from banks and institutions even after defaulting on loans taken from ...

MUMBAI, MARCH 14: It’s a curious case of a company raising more money from banks and institutions even after defaulting on loans taken from the same institutions earlier. Even though SOL Pharmaceuticals Ltd, a Hyderabad-based company, owes nearly Rs 200 crore to institutions, it raised nearly Rs 66 crore from banks/institutions and through the fixed deposit route during the year 1996-97. SOL Pharma could not repay the dues to financial institutions and the latter restrained the company from disbursing the dividend declared for the accounting year 1995-96. “As a result, the company’s board revoked the 30 per cent dividend declared on the equity capital for the year ended March 1996,” the company said.

Strangely, the company managed to raise this money even after institutions stopped the company from paying the dividend for the year 1995-96 as it “could not repay dues to the financial institutions”. This has happened at a time when the company made a huge loss of Rs 67 crore for the period ended September1997 (it made a profit of Rs 17.12 crore in the previous year).

As per the balance sheet of SOL Pharma, term loans from FIs went up to Rs 34.01 crore in 1996-97 from Rs 14.78 crore previously. Similarly, working capital loans shot up to Rs 123 crore from Rs 103 crore. The company also managed to raise Rs 26 crore as fixed deposit during the year, taking the total mobilisation to Rs 66 crore. On top of this, Industrial Investment Bank of India (IIBI) gave an unsecured loan of Rs 2.70 crore to the company.

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After all this, the company ended up making a huge loss.

As a result, two-third of the company’s networth of Rs 102 crore has been wiped out. The interest burden of the company shot up to Rs 52.30 crore from Rs 18.99 crore in the previous year.

According to the Directors’ Report, the year 1996-97 witnessed a sea-change in the fortunes of the bulk drug industry. The period marked a severe and intense competition at the market place, resulting in a steep fall in the margins available. “On the otherhand, the cost of inputs continued to increase. The company was no exception to these changes,” the report said, explaining reasons for the poor performance.

“The company’s performance was affected during the period by review by a severed liquidity crisis. In spite of the best efforts made, the company could not effect any significant improvement in the state of affairs. This has, in turn, resulted in a low ebb of operations,” it said, adding, “The right, title and interest of two registered trade marks Reflux and Clamp have been sold.” It is pertinent to note that the RBI has been circulating a list of companies which have defaulted in repaying the loans taken from banks and institutions to prevent fresh loans to erring companies.

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There have been reports that the defaulting accounts are frequently restructured by institutions for the sake of the companies. It is not known whether SOL Pharma was included in the defaulters list circulated by the RBI. Incidentally, Allahabad Bank has also got itsnominee on the company’s board.

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