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FIs ask Modi Rubber promoters to hike offer price by 10-15%

George Smith Alexander & Baburajan K

Financial institutions have asked the Modis to increase the offer price for Modi Rubber by 10 to 15 per cent and pick up their entire 45 per cent stake in the company.

The Modis had earlier offered to purchase 35 per cent stake in the company at Rs 81.50 for each MRL share.

Institutional sources said the Modis could not be allowed to go ahead with their proposed offer as FIs would be left holding a small stake.

"Given the fact that Modis will have at least a 51 per cent stake after the offer, the smaller shareholders (including the FIs) will be at their (Modis') mercy. The price of the MRL share may also fall reflecting the changed shareholding pattern," institutional sources said.

"There is also a possibility that Modis may choose to delist the company subsequently, which may lead to a total loss in shareholder value," the sources added.

A 10-15 per cent escalation in the Modi open offer price would mean a price band of Rs 90-100 per MRL share. According to institutional sources, the Modis are expected to revert to the institutions this week with a firm counter-proposal after which the matter will again be referred to the heads of institutions.

Sources said the Modis had apparently sounded out one of the institutions two years back with an indicative price of Rs 120 per share, though nothing was committed on paper.

But heads of institutions strongly advised the concerned institution to desist from entertaining private deals in the matter. The consensus at the heads of institutions meeting (HIM) was that all institutions must swim or sink together.

Another top institutional source said the FIs are determined to take a strong stand on the issue to send a message to promoters of other companies which have failed to adopt corporate governance norms.

Modi Rubber has been in the eye of a storm for over four years now with the institutions having announced their intention to exit in 1997. The Modis had then indicated their inability to buy the entire FI stake.

If, however, the Modis fail to reach an amicable settlement with the FIs, the latter have decided to auction their shares en bloc to a third party. Sources said though they have not yet received any feelers from interested parties, "selling off the stake should not be a problem."

UTI and LIC hold a major chunk of the institutional holding, while IDBI, IFCI and GIC has smaller stakes. The Modis have already secured government approval to transfer 21 per cent of their holding to overseas bodies to share the cost of the offer.

In 1999-00 (year closing September), Modi Rubber posted losses of Rs 430 million on a 14 per cent lower sales at Rs 8.12 billion. Even for the first half ended March 31, the company posted losses of Rs 183.4 million.

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