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K K Birla group to raise stake in Gobind Sugar by 25 per cent

Kausik Datta

The K K Birla group has decided to raise its stake in Gobind Sugar Mills, a group company based in Uttar Pradesh, by 25 per cent from the existing 50 per cent through issue of preferential shares.

This is the second time that the group is raising its stake in a group firm. Earlier, the group has hiked its stake in its shipping company, India Steamship, to 78.83 per cent to clear the firm's huge outstanding loans. This was one of the requirements to put the cash-strapped shipping firm back on rails.

An official with the group's sugar business said the group has decided to subscribe 100,000 fresh equity shares of Gobind Sugar at Rs 510 each. The combined sugar production of the four group companies - Gobind Sugar, Upper Ganges Sugar, New India and Ayudh Sugar - makes it the largest in the country and one of the largest in the world.

The proposed move proves the promoter's commitment to the group firms, the official said, adding, "Gobind Sugar needs urgent infusion of funds to prop up its working capital. The promoters decided to do this on their own before going for funding from financial institutions."

The official said the proceeds of the issue would be utilised to augment working capital requirement of the company. The proposed preferential issue, which was cleared by the Gobind Sugar board this week, would be placed before the shareholders in the last week of May. The entire proceeds would be infused by June-end, he added.

With the issue, the company's equity base would be doubled from the existing 100,000 shares. In the enhanced equity, the promoters' stake would be increased to 75 per cent from existing 50 per cent. Holdings of financial institutions and other private corporate bodies would be halved to 7.5 per cent. Post issue, public holding would also shrink.

The promoters had subscribed 29 million preferential shares of Indian Steamship towards the end of last year to help the company partly clear off the dues amounting to Rs 750 million to State Bank of India, Indian Bank and the Union government.

According to the dues clearance formula of India Steamship, the company was supposed to generate Rs 140 million from accruals and Rs 290 million from the preferential issue. The management had also issued preference shares of Rs 210 million and agreed to hand over real estates amounting to Rs 110 million to the creditors.

Unable to cough up an outstanding of Rs 750 million, the company has proposed a one-time-settlement, including a cash component and surrender of the properties, with three lenders. The immovable properties--the entire India Steamship House in Calcutta, one floor of Octavius Centre, five flats on Judges Court Road, three units of Great Eastern Chambers of Bombay and a flat in Goregaon-- were valued at Rs 110 million by the lenders.

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