Sick cos on a comeback trail via CDR route
A number of sick companies who have reduced their equity capital through the corporate debt restructuring (CDR) scheme are on the turnaround track.
By Amit Jain, TNN |
NEW DELHI: A number of sick companies who have reduced their equity capital through the corporate debt restructuring (CDR) scheme are on the turnaround track.
Rama Newsprint, Nicco Corporation, Birla VXL, Ispat Industries and few other steel firms are some examples in this case. These companies have substantially reduced their equity capital and a financial restructuring is enabling a turnaround.
In the case of Rama Newsprint, the company’s equity was reduced by 75% only recently as per the CDR plan. Following the simultaneous waiver of close to Rs 190 crore of outstanding debts/interest against the company, and the cost-cutting operations, followed by the company, it had shown a turnaround over the last two quarters.
The company had reported a net profit of Rs 7.1 crore in the Q4FY06 and has again reported a net profit of Rs 10.22 crore in Q1FY07.
Now that even the equity of company has got reduced by 75% to Rs 58.16 crore, the Q1 profit for current financial itself translates into an EPS of Rs 1.75, and hence the re-listed stock has risen to a level of Rs 52 in the market, on the reduced equity base of company.
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Nicco Corporation is also following the route of carrying out equity reduction exercise for its financial restructuring. In this case, the company has finalised its agreement with six strategic investors, who would pump in fresh money of Rs 20 crore by subscribing 90.90 lakh optionally-convertible cumulative preference shares (OCCP) of Rs 22 each, entitled to be converted into five equity shares within 18 months. While the company’s equity capital has recently been reduced last month only to shares with face value of Rs 2 from Rs 10 earlier, it has a managed to show nominal net profits of Rs 0.16 crore in Q1FY07 (without any extra-ordinary gains) on its quarter’s turnover of Rs 90 crore.
The company’s stock with a reduced face value is yet to be re-listed on the bourses. Birla VXL’s equity base was reduced by 80% earlier this year, and part of its assets/liabilities were transferred to its subsidiary-OCM (India), as per the restructuring plan.
The parent company has posted minor net losses of Rs 2.5 crore in Q1 after the reduction in outstanding debts, from losses of Rs 27.88 crore in the comparative quarter a year back.
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