Cil Plans Intra Corporate Transfer Of Resources
Coal India Ltd (CIL) has taken up a plan of intra-corporate transfer of resources from the financially strong subsidiary companies to weaker ones through a reverse swapping mechanism.
The companies making profits have been identified and they include Northern Coalfields Ltd, South Eastern Coalfields Ltd and Western Coalfields Ltd.
In reverse swapping method, equity bases of the profit making companies (PMCs) will be reduced and debt components will be increased.
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This implies that the debts to Coal India Ltd will be substantial. Thus, the higher debt component of the profit making companies will help Coal India Ltd to mobilise resources from them so that the loss making companies (LMCs) can be given some support.
Coal India Ltd feels that profit making companies will have to shoulder more financial responsibilities for their sister concerns.
In the process, capital outgo of the loss making companies is likely to come down substantially.
Under the reverse swapping scheme, gross equity of Northern Coalfields Ltd (NCL) will be reduced from Rs 178 crore to Rs 170 crore by swapping its equity capital of Rs 1008 crore into debt.
The equity of the company will thus be brought down by a whooping 85.57 per cent.
In the case of South Eastern Coalfields Ltd, the gross equity is being reduced by 67.88 per cent.
Plans are afoot to reduce the equity base of the company from Rs 1121.5 crore to Rs 360.2 crore.
This will enable the company to swap Rs 763.3 crore from the equity base to debt.
Similarly, Western Coalfields Ltd's gross equity will come down to Rs 297.1 crore from the existing equity base of Rs 711 crore after swapping Rs 413.9 crore into debt, indicating a decline of 58.23 per cent in the equity size.
The question that is being asked is that the dividend income from profit making companies will decline which will affect the Coal India resources.
But this is unlikely to happen as, subsequent to reverse swapping mechanism, the profit making companies may compensate the loss to Coal India Ltd by declaring higher rates of dividend, by raising the percentage of dividends.
In reverse swapping, equity bases of profitmaking firms will be reduced and debt components increased