I-Sec To Shed Term-Lending Business

Under pressure from JP Morgan, I-Sec is restructuring its operations in the wake of the Rs 74-crore net loss incurred for the six months ended September 1996. Part of the restructuring also involves I-Sec shrinking its equity trading business and concentrating on debt which is its core competency. The lending and venture capital businesses will now be looked after by the parent company, ICICI and TDICI, the venture capital arm of ICICI.

The restructuring and the cost cutting measures come after the company posted a Rs 74-crore net loss for the first six months of the financial year where it has been hit badly due to depressed capital market conditions.

 

I-Sec incurred the loss due to a massive erosion of their investment portfolio which they have decided now to mark to market.

It has decided to move away from the long-term investment in debt and equity under pressure from JP Morgan. The international investment bank, which holds 40 per cent stake in I-Sec has stated that the company is an investment bank and basically into trading operations. Hence, it has asked I-Sec to mark all its investments to the market unlike banks and financial institutions that have permanent investments which are not depreciated.

As a matter of policy, I-Sec will move into more market related activities. It will take up both debt and equity placement apart from issue management.

The company is looking at the commercial paper market and will soon start placement of this instrument on a large scale. Once these market are opened, I-Sec also plans to move into futures and options and hedge funds

The company is also adopting cost-cutting measures to boost the bottom line towards the end of the year. I- Sec will cut all grand-stand expenditure. This generally translates into expenditures that will go with business development which will be cut down.

JP Morgan has put pressure on I-Sec to mark its entire investment portfolio to market. This has seen a Rs 27-crore loss due to depreciation of the investment portfolio in the first half of 1996-97 along with a Rs 40-crore loss which the company had incurred last year.

Kishore Chaukar, managing director of I- Sec said: ICICI and JP Morgan should know that there has been an erosion in our profits. So far we have been trying to avoid it by adding a note at the bottom of our balance sheet. But we cannot run away from reality and therefore we have marked to market our entire securities portfolio.