Kolkata: The recent restrictions imposed on the allotment of preference shares to non-residents by the Reserve Bank of India (RBI) has stymied Pawan Kumar Ruia’s plans for attracting working capital needed to revive Dunlop India Ltd, the tyre-making company he acquired in December 2005.
This could also derail production at the company’s two plants at Ambattur in Chennai and Sahagange, some 70km from Kolkata.
Preference shares issued to foreign entities are now treated as loans governed by the same guidelines as external commercial borrowings. Among the RBI restrictions is one prohibiting the use of such money for working capital.
Ruia has been talking of placing 14.5% of the company’s stake with a consortium of foreign banks to raise a loan of Rs400 crore and a good part of this money was to be used to meet Dunlop’s working capital needs. “The company has started the process of restructuring the deal,” said Ruia, while refusing to elaborate.
Dunlop, which is a sick company under the Bureau for Industrial and Financial Reconstruction, has had trouble raising funds even as a capital infusion of Rs260 crore, including Rs77 crore, raised from an unnamed foreign bank has not helped.
The company still needs Rs200 crore working capital for full production and Ruia has not been successful in raising more money for running the operations.
Dunlop India raised Rs27 crore from its rights issue in April this year, but the Appellate Authority for Industrial and Financial Reconstruction (BIFR) issued a maintain-status quo order on it, making the funds non-deployable.
With the trading of the company’s scrip suspended in the Mumbai, Kolkata, Chennai, New Delhi and Ahmedabad stock exchanges, the capital market route has also been blocked.
Early this year, Dunlop got its properties revalued by Jones Lang LaSalle and the increased value of Rs1,072.08 crore was added to the companies revaluation reserve. But BIFR refused to see this book entry as a basis for propping up the company’s worth.
With Dunlop struggling to find funds, production at Ambattur and Sahagange factories has fallen well short of projections that Ruia made last year.
Ambattur, which went into production in August 2006, has produced 8,135 truck tyres, 568 tractor tyres and 5,768 flaps (used inside tyres). According to a stores record given to Mint by the Ambattur plant’s union leader, there has been no production in the months of November and December 2006, and in March 2007. This document could not be independently verified with Dunlop.
The total production at the Ambattur plant in the months it operated grossed 461.53 tonnes. This is far below the 770 tonne production Ruia had projected for the full month of September 2006, when he inaugurated the plant on 27 August 2006.
The picture is even more dismal at Sahagange, where union leaders and workers say the total output in the eight months since production was flagged off on 31 October would, at best, be 600 tyres.
Plants at Sahagange and Ambattur had started with a daily production of 27 tonnes each, is all Ruia is willing to say. Dipankar Roy, general secretary, Dunlop Workers’ Union, which is affiliated to the Centre for Indian Trade Unions (Citu), contests even this claim. “Sahagange has not seen even a single day’s production of 27 tonnes,” he insists. Now both the plants are ready to process 50 tonnes a day, maintains Ruia, but his optimism is not shared by his workers.
“At the current stock of raw materials, we can barely manage four-five days of production at 50 tonnes per day,” says Bitan Chowdhury, a charge-man at the plant. According to him, the production on two days of last week adds up to 54 tyres, which is “less than a tonne”.
At Ambattur, meanwhile, Dunlop has to clear arrears on its electricity bills. Ruia actually blames a lack of power for stopping production at the plant. Power to the plant was cut off on 2 April for eight days. The company stopped production on 26 April, says D. Devanathan, general secretary of the employee union at Dunlop’s Ambattur plant. The Tamil Nadu Electricity Board, which could not be reached for comment, cut power to the plant again on 16 June.