Kolkata: The B.K. Birla Group-controlled Kesoram Industries Ltd will raise 500 crore by selling stocks to shareholders, which analysts say is aimed at raising promoter holdings from 27% while reducing its debt.

The cement and tyre maker said in a regulatory filing on Monday that it will use 375 crore from the proceeds of the rights issue to repay debt and use the rest as working capital.

The repayment will reduce its debt-equity ratio from 4.27 to less than three, according to analysts.

With 453 crore stuck in a stalled project in Orissa, the company is paying around 450 crore a year in interest. At the end of September, the company was indebted to the tune of 4,815 crore.

The lenders to be repaid include State Bank of India, Bank of Baroda, ICICI Bank Ltd, IndusInd Bank Ltd, Punjab National Bank and South Indian Bank Ltd.

Kesoram was looking to expand the tyre manufacturing capacity of its factory in Balasore in Orissa, but the project was halted by a public interest litigation alleging violation of environmental laws, the company disclosed in its rights issue prospectus. Kesoram had initially proposed to invest 668 crore at its Balasore factory.

The company declined to comment.

In view of its current financial woes, it is unlikely that investors would subscribe to the rights issue, said Kolkata-based equity analysts, who did not want to be named. “It appears that while the intention is to improve the debt-equity ratio, the promoters are also looking to raise their stake," one of them said.

In fiscal 2012, Kesoram posted a net loss of 380 crore on a revenue of 6,005 crore. Its loss from operations declined significantly by a tax credit of 330.5 crore.

The company’s stock fell 0.96% in a flat market to 139.05 on BSE Ltd.

Kesoram, which produces 7.5 million tonnes of cement a year, has put on hold capacity-expansion plans.

Even so, the company in its 2012 annual general meeting obtained shareholders’ approval to raise its borrowing limit from 4,000 crore to 6,000 crore.

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