GHCL to absorb Meenakshi Mills

AHMEDABAD: The Sanjay Dalmia-controlled Rs 412-crore Gujarat Heavy Chemicals Ltd (GHCL) will amalgamate its loss-making textile company, Sree Meenakshi Mills Ltd (SMML), with itself with retrospective effect from April 01, 2001.
While Dalmia has around 40 per cent stake in GHCL, his stake in SMML is over 80 per cent. That means, effectively shareholders of GHCL are paying up for the losses piled up by SMML.
But, GHCL officials claim that the amalgamation will benefit GHCL as SMML''s accumulated losses can be used by GHCL for tax advantages.GHCL will also get SMML''s ''strong'' asset base. While GHCL makes soda ash, SMML makes cotton and blended yarn.
GHCL has reported sales of Rs 412 crore and net profit of Rs 45.4 crore for the 12 months ended March 31, 2002. But, these figures do not include the effect of the amalgamation according to company officials. Consolidated results of the amalgamated entity will be declared in July. Shareholders of SMML would get three shares of GHCL for every 10 shares of SMML, with face value being Rs 10 for both companies.
GHCL officials were not willing to reveal how they will adjust the losses of SMML, a Board for Industrial and Financial Reconstruction (BIFR) case for several years. As of March 31, 2001, SMML had negative reserves of Rs 58 crore on a share capital of Rs 6 crore and total debt of Rs 51 crore. As of FY01 end GHCL had made advances of Rs 51 crore to SMML. Rs 33.33 crore were paid to financial institutions and banks as one time settlement. Another Rs 13.4 crore were given for implementing a VRS and revamping equipment and Rs 4.2 crore for some creditors.
Officials at credit rating agency ICRA said a review of GHCL''s financials is underway and the effect of SMML''s amalgamation is being studied. In its last review in April 2001, ICRA had downgraded the long-term, medium-term and short-term ratings assigned to various debt instruments of GHCL from LA+, MA- and A1+ to LA-, MA and A1, respectively.
ICRA report stated that while the revised long- and medium-term ratings continue to indicate adequate safety, the degree of safety has declined since the earlier rating.