20th Century To Hive Off Car Loans To Joint Venture

Twentieth Century Finance Corporation (TCFC) is planning to hive off its car loan portfolio to its 50:50 joint venture company with General Motors Assurance Company (GMAC) called GMAC Twentieth Century Finance Corporation.

GMAC, the car finance company of General Motors, had earlier this year signed a joint venture agreement with TCFC.

Market sources claimed that TCFC is transferring the entire car loan portfolio to this company. When contacted the TCFC spokesperson specified that assets which were less than a year old have will be picked up by the joint venture.

He further specified that TCFC will not be receiving any consideration for the proposed transfer of assets to the new company.

 

However, market sources claim that it is possible that hat consideration on transfer of assets could be adjusted against the equity contributions of the venture participants. TCFC is bringing in Rs 19.60 crores as equity contribution into the venture while GMAC is pumping RS 20.40 crores as equity into the company.

This comes as a part of the restructuring of TCFC operations, which includes its likely merger with Centurion Bank.

TCFC had total assets of Rs 900.05 crore as on December 31, 1997, of which leased assets totalled Rs 518 cr.

Although the company officials claimed that this was a part of the agreement, the move apparently has been generated by the fact that revenues from the leasing business have slowed down while defaults have increased.

This can be seen from the spurt in the provisions for NPAs which jumped to Rs 8.09 crore in 1997-98, a jump of 206 per cent over the previous year.

This increased provisions will further add to the NPAs of Centurion Bank, which is expected to take over the operating business of TCFC, and whose NPAs presently stand at Rs 0.34 crore. This could affect the balance sheet of Centurion Bank.

On the other hand if the company had tried to sell the portfolio to a concern outside the group then it could have led to a situation like the ITC Classic - ICICI and Anagram-ICICI merger cases where the sellers had to incur a cost in disengaging from the business.

In effect TCFC will become only a holding company in the venture while also working on its merchant banking activities.