Hocls Bond Issue Evokes Poor Response

The state-owned Hindustan Organic Chemicals Ltd (HOCL), which is on the divestment list, has seen a poor response to its ongoing Rs 100 crore bond issue. The funds are being raised to clear dues of around Rs 85 crore.

Rural, private and nationalised banks have subscribed to the eighth bond series being offered at an attractive coupon of 9 per cent for a year.

The issue, which is in the market for the past couple of months, has mopped up just Rs 78 crore as HOCL has been defaulting on payment of principle and interest.

The issue has been rated P1+ (SO) by the Credit Rating and Information Services India Ltd and is guaranteed by the Centre. "The rating is based on the strength of the unconditional and irrevocable guarantee provided by the Centre for full and timely payment to the investors," Crisil said.

HOCL defaulted on its repayment commitment to bond holders for the bond series I to the extent of Rs 69 crore. It has failed to fully meet the interest obligation on other bond issues (series II through VII) since September 2001. According to investors, just 50 per cent of the interest has been paid to date.

The net worth of HOCL was wiped out and stands at Rs 197 crore on the back of losses for three consecutive years. For the fiscal ended 2002, HOCL reported a net loss of Rs 30 crore on a sales of Rs 349 crore.

Alliance Capital, Centrum Finance, and Darashaw Investment and Broking are among the arrangers to the issue.

According to analysts, "The issue carrying a coupon rate of 9 per cent is quite high compared to the current market yield of 8.10 per cent for other 'P1+' paper of one-year maturity".

The government holding of 58.6 per cent is expected to come through by June 30, and is reflected in the company's share price. The scrip has been on the rise since January this year from Rs 7 to Rs 12 in March and is hovering around Rs 34. This comes on the back of HOCL's divestment moves.

Should the divestment fail, the government has given permission to the chemicals company to raise an additional Rs 250 crore to lower the cost of debt, said industry sources.

Crisil had downgraded HOCL's earlier bond issues and fixed deposit on February 15 from C to D, stating: "The rating reflects that the company is in default and in arrears of interest and principle payments".

According to Crisil, such debentures are extremely speculative and returns may be realised only on reorganisation or liquidation. Incidentally, HOCL's bond series III has been restructured, with dues to be paid after a year at the old rate of interest.