Cash-Strapped Itc Global Warned Of Closure

The consultancy firm, which was asked to do a financial appraisal of the company, presented its final report on ITC Global to the committee of directors of ITC Ltd on October 6.

According to the report, the company's total liabilities run up to US $ 54.2 million. It also warned the company that its current overdues of US $ 13.21 million will go up by another US $ 25 million in October when some of the bank credit has to be repaid.

The report says the company is facing an acute liquidity crisis because of three factors:

* ITC's inability to remit US $ 20 million as the Ministry of Finance has not disposed of ITC's application which has been pending from March 22, 1996.

 

* No further trade by ITC divisions as remittances from ITC Global are now overdue

* The continuing burden of illiquid assets.

The break-up of the company's liabilities, according to the Arthur Anderson report, includes a negative net worth of US $ 5.7 million, loss on current year operations including interest impact of illiquid assets carried forward from January 1, 1996 of US $ 6.5 million, illiquid assets of US $ 38 million, net fixed assets and deferred revenues of US $ 2.2 million and current assets of US $ 1.8 million.

The company's poor financial position was, in fact, complicated by the faulty accounting practices which were being followed by the company as is reflected in various internal documents.

Doubts were raised about ITC Global's accounting policies in a communication by ITC Ltd deputy chairman Saurabh Misra on October 11. ITC Global, which approved its audited accounts on June 12 in its directors report had confirmed that they had satisfied themselves that all known bad debts had been written off and adequate provisions had been made for doubtful debts.

But on June 17, the ITC board took cognisance of a note from director R K Kutty on June 14 which points out that further provisions might have to be made in ITC Global and that the management estimates it at $ 8.13 million at a optimistic level and US $ 17.5 million at a pessimistic level.

Misra notes that "there could be a view that ITC Global's accounts for 1995 did not show the full provisions, because just two days after their board meeting there is communication that further provisions are required".

The ITC top brass, which was contemplating windup of ITC Global, was confronted with fresh information which was made available to the board of directors at its meeting on October 14 that brought to light the legal hurdles to such a course of action.

A note prepared by Misra on October 11 for discussion at the board meeting clearly says that "ITC Global may not be able to put through a winding up because a majority of the directors have to make a declaration of solvency, which basically certifies that the company will pay off all its debts within 12 months from the commencement of winding-up". The observation is based on advice given by ITC Global's lawyers.

The note also says "given the delays in the response to our application(for $20 million)...it would be prudent not to assume an early approval for an even larger amount to settle all liabilities".

In view of the liquidity crunch and ITC's limited ability to assist, Misra drafted a six-point agenda which was presented to the board in its meeting on October 15.

The note suggests " immediate meeting of ITC Global and its creditors" to discuss the current financial situation and forthwith manage the company in the interest of the creditors. This, Misra suggests, may "necessitate suspension of operations,significant reduction in overheads, and changes in the management structure of ITC Global..."

Tomorrow: How Chitalias tried to make peace with ITC

ARTHUR ANDERSON REPORT

The company faces the prospect of forced closure of operations

Its total liabilties are to the tune of US $ 54.2 million dollars

US $ 25 million of bank credit will be overdue from the company in October above the existing overdue of US $ 13.21 million.

The company faces acute liquidity crises die to ITCs inability to remit US $ 20 million ,stoppage of trade by ITC divisions and burden of illiquid assets