Fis Uncertain On Dunlop Issue

The financial institutions, which control a substantial part of the tyre major Dunlop, have not made up their minds on whether to pick up their entitlement in the companys proposed Rs 66-crore rights issue.

The Dunlop management, led by P J Rao, is making a major pitch to get the FIs to fork out their portion of the funds by way of their share in the Dunlop rights issue.

Institutions control about 33 per cent in the tyre company, controlled by M R Chhabria.

The FIs stance makes it difficult for the company to gauge the fate of the proposed issue, which is so critical to the future of Dunlop.

We may not subscribe to a rights issue in every case. We, as institutions, have to take what would be purely an investment decision, not guided by any other factor, top sources in a leading FI, which has a stake in Dunlop, told Business Standard.

The Dunlop management, which met West Bengal finance minister Asim Dasgupta, also made the point to the state government that the success of the rights issue, an integral part of the companys revival plan, also depended on the commitment shown by the institutions. Rao also sought the governments help in this regard.

The prospects of revival, as we see it, should be good enough for us to invest in the rights issue. Merely hoping for a revival is not going to be enough, the sources explained.

The market situation, sources said, would also count in helping the institutions decide.

It may be recalled that the institutions, on another front, are locked in a stand-off with another Manu Chhabria company the liquor giant Shaw Wallace and Co (SWC).

Chhabria recently flexed his shareholding muscle and threw out FI nominee P K Pandit, who was later reappointed by the FIs following a Company Law Board directive.

Whether the SWC factor will play in the minds of the FIs in deciding on the Dunlop rights issue is not yet clear, but the ultimate decision of the institutions would play a major role in determining the companys fate.

The situation at the company, following the suspension of operations at Dunlops Sahaganj works in West Bengal and Ambattur in Tamil Nadu, is weighing in the minds of the institutions and is certain to play a part in their final decision.

The state finance minister has also asked Rao and the Dunlop management to submit the companys revival plan.

The rights issue apart, a $25 million external commercial borrowing plan and leveraging of non-performing assets form the core of the tyre majors fund-raising strategy.