Prudential Caps in deep trouble

But even the hope of getting their funds back over a period of two years seems to have faded with Prudential telling its 30,000 investors that it is in no position to make any payments this year. Following a meeting of its zonal heads and branch managers, it has asked investors to renew their fixed deposits of close to Rs 70 crore for another year.

On July 1, in a circular to depositors, chairman Vinod Baid, made a clean breast of things. “The years ahead for NBFCs appear to be very grim and borrowing and lending money is no more a viable business proposition. Risk elements are high and recoveries of dues from various borrowers have become difficult,” he started.

He added: “The money we have collected as FDs have been deployed in ICDs, bill discounting and asset financing etc… This was done keeping in mind that continuous flow of money in terms of fresh collections will be there and timely recoveries of our dues will be possible.

The recent development (CRB scam) has however uprooted the total planning. The funds deployed by us have been stuck and the the borrowers are simply not paying back.”

Then while seeking the support of the investors “in the current precarious situation”, Baid delineated the measures the company was forced to adopt:

* Not to accept fresh deposits, but to limit the liability

* Not to accept premature withdrawal of FDs

* Not to extend loans against FDs

And to “request” depositors to renew their FDs upon maturity for one more year.

The question investors are now asking is whether Prudential will survive. T Vidya Sagar, Executive Vice President of Prudential Capital Markets, is optimistic. He said: “This is a bad phase and we are working like a family.

Most of us here are in a position to leave this place and walk out. But we haven’t done that because we are committed to protecting our investors.”Not everyone though shares his optimism. Senior executives speaking privately admit that Prudential is on the verge of closing down most of its financial operations.

“We are retrenching staff and will maintain only about 4-5 people to manage the FDs,” said an executive.

Vidya Sagar, however, argued that this may not be neccessary because the company intends to sell some of its assets to service the depositor base. He claimed that a deal was being worked out to bring in Rs.65 crore to tide over the current crisis.

He was tightlipped on what assets are on the chopping block, but company sources claimed that the Nariman Point premises of the company’s Mumbai office might be the casualty.

It may be recalled that a couple of days ago, CARE, a credit rating agency, had downgraded the FDs from AA to BBB. A BBB rating indicates investment grade. A press release from CARE said that the quality of assets owned by the company is not good. Therefore, the possibility of a further deterioration in assets cannot be ruled out.

To make matters worse, SEBI had recently issued two warning letters and show cause notices for lapses by Prudential in handling public issues.

As things stand now, Prudential intends to move into sugar, cement and pharmaceuticals with the thrust being on sugar.

The company already has a presence in all the areas. Vidya Sagar claimed that the sugar unit owned by the company was among the best in the south and will yield the group rich dividends in the future. The plant is still not operational.

As for cement, it is a loss making unit. For 1995-96, it managed sales of only Rs 3.24 crore on which it managed to record a loss of Rs 2.15 crore.On the stock markets, the scrip languishes at Rs 5 (as on Wedensday). A far cry from the Rs 50-60 it used to command some time ago.