GE Capital arm to raise Rs 250 crore

Rights issue to bring down promoters' stake by 2.33 per cent.

GE Capital Transportation Financial Services, a subsidiary of GE Capital, plans to raise Rs 250 crore through a rights issue.

The company plans to use the fund for expansion of its branch network in tier-II cities, and diversify into used commercial vehicle finance business to de-risk loan portfolio and improve margins.

In its draft prospectus, GE Capital said its promoter, GE Capital Mauritius Investment Company, may not fully subscribe to its entitlement in the rights issue in order to reduce its stake to less than 75 per cent from the current 77.33 per cent.

GE Capital Mauritius may renounce a part of its rights entitlement in order to comply with Clause 40A of the listing agreement, which requires companies to have a minimum public shareholding of 25 per cent for continuous listing. The company has sought time till April 2008 to adhere to this clause.

However, the company said its promoter would subscribe to such additional equity shares to ensure it received a minimum subscription of 90 per cent of the rights issue and consider ways of complying with clause 40A later.

The rights issue will also enable GE Capital to comply with the minimum capitalisation requirements prescribed by the Foreign Investment Promotion Board (FIPB) in May 1997.

The FIPB while permitting 85 per cent foreign equity in the company, which was earlier called SRF Finance, had prescribed that it should be capitalised upfront to the extent of $25.9 million and to $50 million within two years. GE Capital had failed to meet this requirement so far.

GE Capital does not also meet the capital adequacy norms of the Reserve Bank of India (RBI). All non-banking finance companies, which do not take public deposits and have more than Rs 100 crore of assets, are considered by the RBI as strategically important NBFCs.

These NBFCs are required to maintain a minimum capital adequacy of 10 per cent. GE Capital's capital adequacy at the end of September 2007 was 0.21 per cent.

GE Capital's annual audit reports from 2002-03 to 2006-07 have stated that the company's accumulated losses are more than 50 per cent of its networth. As on September 30, 2007, GE Capital's networth was Rs 31.70 crore.

The company's working results for the April-October period in 2007 showed a loss of Rs 7.73 crore on a total income of Rs 92.82 crore.