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Journalism of Courage
MUMBAI, OCT 14: Essar Steel of the Ruias has run up a whopping overdue amount of Rs 2,144.50 crore on its loans and advances as on March 31, 2000. This overdue amount — put simply, funds which the company owes to the financial institutions and investors even after due date for repayment — has even overtaken its net worth (equity capital plus reserves) of Rs 2,083 crore for the last fiscal.
Although the company’s balance sheet says that this is an overdue amount, this amounts to default of debentures and other instruments in practical terms. The company had last year defaulted on repayment of its overseas floating rate notes, but it later worked out a roll-over scheme for repayment with its overseas investors.
“The management has undertaken measures to improve the financial position of the company including proposed restructuring of loans from financial institutions and floating rate notes. The management is confident that such overdues will not vitiate the going concern assumption in view of the restructuring plans of the company,” it adds.
The overdue amount is almost 50 per cent of loan funds (secured and unsecured) of Rs 4,418 crore which the company has taken from banks and financial institutions. As per the balance sheet, the company has not paid penal interest on loans. “Provision for penal interest, liquidated damages etc. aggregating Rs 11.46 crore on overdue loans, claimed by institutions, is not considered at this stage,” the company says.
The auditors of the company have qualified its balance sheet on several counts:
* The company has recorded certain transactions of sale of steel at the rate of exchange prevailing on the date of receipt of advances and the outstanding advances have not been revalued at the year-end exchange rate. if the company’s view is not accepted, the exchange rate of Rs 129.75 crore due to revaluation of the outstanding advances would have been charged off to the profit and loss account.
* The company has accounted for sale of licences to a company, aggregating Rs 32.44 crore though the licences have been granted by the concerned authorities subsequent to the year end.
* Had the observations (made above) been considered, the loss for the year would have been Rs 630 crore as against the reported figure of Rs 581.24 crore for the year March 2000.
* The management of the company has capitalised interest and depreciation aggregating rs 140.84 crore and deferred interest on working capital aggregating Rs 18.69 crore on certain plant and machinery for the period April 1, 1999 to March 27/28, 2000.
The balance sheet also gives the extent of erosion of its investment in other companies. “The company has strategic long-term investments aggregating Rs 29.67 crore in the equity of certain companies. There is a diminution of Rs 23.20 crore in the market value of these investments as on March 31, 2000,” it says, adding, “in the opinion of the management, the diminution is due to temporary market conditions and is not ultimately expected to rise.”
Corporate defaults rising
MUMBAI:The number of Indian corporates defaulting on repayment of various loans is increasing. Arvind Mills recently defaulted on interest payment of its $ 125 million floating rate note. The company had earlier defaulted on its $ 75 million external commercial borrowings. Rating agency Crisil recently downgraded Arvind to the default grade (D grade) for defaulting on its domestic debentures.
Chennai-based SPIC had also defaulted on interest payment of its $ 120 million floating rate note. According to banking sources, more defaults are expected as several segments like cement, steel and textiles are not doing well. This is on top of defaults by hundreds of finance companies and plantation firms which have virtually disappeared after taking public money.
