THE MERGED ENTITY OF JISCO – JVSL DOES NOT HAVE AN ADEQUATE AMOUNT TO MEET THEIR LIABILITIES

30th August 2004: The financial reliability of the merged entity formed by the amalgamation of Jindal Iron and Steel Company (Jisco) into Jindal Vijayanagar Steel (JVSL) has been interrogated. A Chartered Accountants firm, Kalyaniwall & Mistry (K&M), has been appointed by the Bombay High Court to determine whether the assets of JVSL and Jisco will be sufficient to meet all liabilities of the amalgamated company, has doubted the company’s ability to meet its prerequisite.

            After the objection rose by Balli Kloeckner GmbH (BKG), a creditor, and the I-T department to the merger, the chartered accountants firm was appointed. Jisco be obliged to BKG Rs 133 crore and the I-T department Rs 63 crore. The terms of reference of the report require K&M to look into the ability of the merged entity to meet all its liabilities, including the claims of BKG and the I-T department, as a going concern, and not on a liquidation basis.

            The report by K&M has concluded that the merged entity’s liquidity levels are less than levels generally considered to be adequate. The report states that there is a significant risk of the amalgamated company becoming bankrupt over the short run, and that in the event of bankruptcy; it will not be able to meet its liabilities. Also, the amalgamated company is presently not in a position to settle the claims of BKG and the I-T department.

            K&M also concluded that it is highly improbable that the amalgamated company will be required to actually settle claims of the objecting creditors immediately. Such an eventuality is likely to take several months at least. K&M has stated that cognisance must, therefore, be also taken of the amalgamated company’s ability to meet claims of the objecting creditors in the near future, adding that the amalgamated company will have sufficient cash to meet these claims over the near term. The financial statement for the year ended 31^st March 2004 has been considered by K&M.

DoT CORE PANEL IS IN FAVOUR OF BSNL-MTNL MERGER

11th August 2004: The merger of BSNL and MTNL has been recommended by a core group set up by the Department of Telecommunications (DoT) on the restructuring of public sector telecom companies. DoT has said that the merger of the two entities is necessary in view of the new competitive environment in the telecom sector. The merged entity will become the largest company in both wire line and mobile operations. Moreover, the consolidation will ensure availability of requisite funds for capital spending. The core group has also explored various models for the merger of the two companies.

The 10-member core group includes telecom commission member (technology) KL Jain, member (services) AK Saxena and Trai secretary Harsh Vardhan Singh. They have explored the pros and cons of four possible options for consolidation of the two entities — BSNL merged into MTNL, MTNL merged into BSNL, acquisition of BSNL by MTNL and acquisition of MTNL by BSNL.

The core group said, BSNL’s merger into MTNL will involve a lot of stamp duty costs and may violate Sebi norms, envisaging a minimum public float for the listed company. MTNL’s merger into BSNL will require relisting of the company. Moreover, MTNL shareholders will need to satisfy. If BSNL acquires MTNL, then MTNL’s shareholders may seek the exit option fearing erosion of their share value, because of BSNL’s operations in rural areas. The other option is acquisition of BSNL by MTNL. This will be acceptable to MTNL shareholders. However, the trade unions may resist this move.

MTNL is listed in domestic markets and NYSE. In 2003-04, MTNL’s profits grew by 31% to Rs 1,150 crore compared to last financial year and its revenues grew by 11% to Rs 6,700 crore. Earlier, there was a negative growth in both profits and revenues. MTNL’s another achievement is taking calls from private operators and giving them a strong contest. In the past one year, it has implemented projects for development of CDMA, GSM and backbone network expansion in record time. It will also commission its broadband project by December this year in a record period of five months.

BSNL and MTNL together will command over 95% of the fixed line market share. The proposed merged entity will be almost seven times the size of Bharti, going by revenues in financial year ’03-04. The total fixed line subscriber base for the mega entity will be more than 4.2 crore, which is way ahead of its competitors. Last year, BSNL’s revenue was more than Rs 29,000 crore and it had a profit of more than Rs 3,000 crore. MTNL’s annual turnover for the year ending March ’04 was Rs 6,700 crore. BSNL and MTNL share common infrastructure and manpower. Indian Telecom Service (ITS) officers are responsible for managing the two companies.

The two companies also have to work closely to meet the requirements of the clients. For instance, if a client wants a lease line between Delhi, which is under MTNL’s area of operation, and Bangalore, which is under BSNL’s area of operations, then the two PSUs have to work together.

MURUGAPPA GROUP HAS DECIDED TO MERGE TIDC WITH TII

2nd August 2004: The Chennai-based, Rs 5,520 crore, Murugappa Group has decided to merge two of its companies – TI Diamonds Chains India (TIDC) with Tube Investments of India (TII). The official sources said that the board of directors of the companies approved the merger of TIDC India with Tube Investment with effect from April ’04.

            TIDC manufactures cycle chains. Tube Investments possess 99.7% in TIDC. The share exchange ratio for the merger has been fixed at 4:5. The scheme is subject to the approval of shareholders of TIDC and Tube Investment and the Madras High Court.