Spinning Out Of Control

Once among the top ten companies in India, J K Synthetics has fallen on hard times. Wracked by family feuds, mounting losses and a ballooning debt burden, the Rs 1,250 crore company is close to being trashed as a case for the Board for Industrial and Financial Reconstruction. And even as the financial institutions make one final effort to put the company back in the reckoning, bickering between the Singhania brothers and heirs could make their plans go awry.

Ironically, J K Synthetics is the flagship Gaur Hari Singhania-controlled J K (North) group. For a major part of its more than half century of existence, the company was considered a force to reckon with in the products like cement, nylon yarn, acrylic fibres etc. Until 1995-96, the company had accumulated approximately Rs 80 crore worth of losses. Its total debt burden (including interest payments) is close to Rs 700 crore and the last time the company paid a dividend to its over one lakh shareholders was five years ago. In fact, today, the company is close to wiping out its networth, which makes it a prime candidate for the BIFR.

 

Understandably, the company, and more importantly, the financial institutions who have lent out large sums to the company dont want this to happen. Thus, the financial institutions with a vital 26.28 per cent of J K Synthetics equity, last fortnight, agreed on a rescue package to stem the slide in the companys operations.

Unfortunately, this is not going to be the end of the story. The rehabilitation package being cobbled together could be scuppered even before it gets off the drawing board.This is because the FIs plan envisages granting complete executive powers to Gaur Hari, the present chairman and managing director of J K Synthetics, leaving his brother and rival Govind Hari, the vice-chairman and managing director of the company, out in the cold.

The companys operations were hitherto controlled by three factions of the Singhania family. Gaur Hari and his son Yadupati managed the companys cement division. Govind Hari and his son Abhishek were in-charge of the nylon and polyester yarn divisions including the polyester staple fibre unit. Ramapati and Nidhipati, sons of late Gopal Kishan looked after the acrylic and nylon tyre cord unit at Jhalawar in Rajasthan and the tyre cord unit at Kota also in Rajasthan. Each division, consequently, maintained a separate cash flow statement.

The FIs believed that one of the fundamental steps to be taken to put the company back on rails would be to concentrate the executive powers of the company with one person. The FIs opted for Gaur Hari, ostensibly because he had managed the cement division well, which incidentally is the only real profit centre in the J K Synthetics fold.

This could possibly open wounds in the Singhania family, which has struggled to resolve the differences between the brothers for years. Sources say, Govind Hari was not even invited for the meeting held by the FIs on January 10, 1997, where the deal to grant control of J K Synthetics to Gaur Hari was struck. It was attended only by the FIs led by the Industrial Credit and Investment Corporation of India (ICICI), the lead institution, and Gaur Hari, Yadupati, Ramapati and Nidhipati as special invitees.

Insiders say this leaves the aggrieved Govind Hari with the option to challenge this decision in court. A litigation at this stage would certainly push the company and its thousands of workforce deeper into an uncertain future.

The point is that Gaur Haris choice is liable to be criticised even by objective company hands. For, apart from the cement division of J K Synthetics, most of the other companies in the J K (North) group are sick. J K Cotton Ltd and J K Jute Mills Ltd, both under his control, have already been referred to BIFR. In fact, towards the end of 1996, the Industrial Finance Corporation of India (IFCI), one of the creditor institutions to J K Synthetics, had described the Gaur Hari Singhania management of J K Cotton Ltd as untrustworthy in a confidential report prepared by it when the company was being put up for sale. The report also pointed out that the operations of J K Cotton suffered mainly on account of management deficiencies, ineffective production planning and marketing strategies.

These remarks by a member FI are strong by any standards and makes out a case against Gaur Hari, the chosen one by the FIs. They also assume significance particularly since the heads of the various FIs are yet to ratify their nominees recommendation of Gaur Hari as the de-facto executive chief of J K Synthetics. Gaur Hari, meanwhile, has rallied the support of his nephews Ramapati and Nidhipati, and has been given the powers by the FIs to reconstitute the companys board. Sources say there are indications of a reshuffle of executives with those owing allegiance to Gaur Hari likely to take over key positions. Steps such as these are likely to deepen the factional feud in the company.

According to the new arrangement, Gaur Haris son Yadupati and nephew Ramapati would continue to be wholetime directors in the company, while his brother Govind Hari has been denied any executive powers but has been given the option to continue as a director on the board. Another important decision taken by the FIs is to consolidate the cash flow statements of the three divisions of the company. Financial institutions say that without a consolidated cash flow they would find it difficult to keep track of the situation.

As a part of the deal worked out, Gaur Hari has been asked to raise Rs 15 crore in working capital immediately. He will also have to raise Rs 110 crore in six months or sell the companys acrylic and nylon tyre cord units at Jhalawar to raise the required funds. The company is reportedly in favour of selling the Jhalawar complex. This is because the acrylic fibre companies are currently not faring well and the share prices of most of these companies are quoting between Rs 2 and Rs 3 for a face value of Rs 10. Further, J K Synthetics acrylic unit too is incurring heavy losses each year. But, given the circumstances, the company would find it hard to find a buyer for its acrylic fibre unit. An executive in the company pointed out that from the marketability point of view, the companys Nimbahera cement plant in Rajasthan would be the most suitable one in the J K Synthetics stable.

The problem is that time is running out fast for the troubled company. The companys losses doubled to Rs 40 crore at the end of the 1995-96 financial year, announced after a considerable delay in late October 1996. The company also reported a sharp drop in its net losses during the six-month period ended March 31 1996, compared to the corresponding period the year before. During the period, losses plunged from Rs 16.6 crore in the six months to March 31 1995 to Rs 35.7 crore in the same period ended March 31 1996, indicating a steady deterioration in the health of the company. The paid-up equity share capital (net of calls in arrears) stood at Rs 74.3 crore for the year ended March 31, 1996 while reserves (excluding revaluation reserves) declined sharply to Rs 30 crore from Rs 70 crore during the year.

Trouble for the company, in fact, began in 1990, when the three factions submitted a proposal for the trifurcation of the company. The FIs had outrightly rejected the familys proposition and after several rounds of meetings came out with the recent contingency package. The Gaur Hari faction has apparently won the battle but the war is not yet over, say insiders. The financial institutions are believed to have considered several other options before finalising the revival package. These include appointing a panel of experts to look into the whole matter of restructuring of the company and come out with appropriate scheme to turnaround the company. The institutions also toyed with the idea of appointing an executive chairman from outside, with the current managing directors and the directors reporting to him.

At one time, the institutions were reportedly in favour of handing over charge of the company to the other successful J K Singhania group promoters such Hari Shankar Singhania, who heads J K Corp or Vijaypat Singhania of the Raymond group. All that is history however and the choice has finally narrowed down to Gaur Hari Singhania. And the financial institutions must hope that this is one decision that they do not have to regret.

A litigation at this stage would certainly push the company and its thousands of workforce deeper into an uncertain future.