The Moment Of Reckoning For Parasrampuria

This year, Parasrampuria Synthetics extended its accounting period by two months to close in June, and then reported an astounding loss of Rs 318 crore. The reason for the delay in announcing the bad news was simple: there werent enough people in its accounts department. In all, 250 executives have walked out on the beleaguered Rs 500 crore synthetics major in the last few months.

Those who havent are putting up a brave front. Yes, we are in trouble. But then, who isnt? Except for Reliance, no polyester company is without problems, says Rajiv Mahajan, vice president (finance). But Parasrampuria Synthetics may have a bigger problem than most it could see a liquidation of its assets soon. The reason: its creditors, a pack of financial institutions (FIs), are baying for its blood.

 

Omprakash Parasrampurias company, which had reported a profit of Rs 9 crore just a year before slipping into the red, has now lost control over its assets. A court receiver, appointed by the Mumbai High Court on November 5 in response to a petition filed by ICICI, is acting as the custodian of the companys assets. But Parasrampuria Synthetics brushes this aside. This is only a notional possession of assets to allay FIs fears that the company will run away with their money, insists a source. The FIs fear is understandable. Parasrampuria Synthetics borrowings from term lenders chiefly, ICICI, IFCI and IDBI aggregate to Rs 415 crore. Add to this another Rs 205 crore in the form of working capital loans from banks, and the companys total liability is Rs 620 crore.

Parasrampuria Synthetics is trying everything possible to escape the liquidation of its assets worth Rs 580 crore to pay off the loans. A day after the courts ruling, it scampered to the Board of Industrial and Financial Reconstruction (BIFR). But its creditors are at its heels. The company changed some of its accounting practices without the knowledge of the FI nominee director and presented itself as a BIFR case to buy some time if it becomes a BIFR case, then the creditors cannot make their claim easily, says a highly-placed source at the ICICI headquarters in Mumbai.

On September 20, the board of directors of Parasrampuria Synthetics had approved the companys accounts which showed the huge loss and permitted the company to go to BIFR. ICICI has now moved the Delhi High Court for an annulment of the proceedings of the board meeting. The case will be heard on December 10. If the court finds a prima facie case against the company, that would be the end of its BIFR appeal.

Those who are expecting the company to refute ICICIs allegation of changing accounting policy are in for a surprise. While Omprakash Parasrampuria and his son Alok refused to meet Business Standard, a senior executive at Parasrampuria Synthetics corporate office in New Delhi says, Yes, we have deliberately shown a loss of Rs 300 crore. We had to wipe off our net worth. And whatever legitimate steps we could take, we took.

If it had to go before the BIFR, the task before Parasrampuria Synthetics was clear: in 1996-97, show a net loss in excess of the net worth of Rs 244 crore. The steps taken towards this end were simple computing changes. One, the company changed the method of calculation of depreciation from the straight line method to the written down value method. This resulted in an additional loss of around Rs 85 crore. It brought down the interest income booked on debtors from 30 to 15 per cent, and issued credit notes worth Rs 55 crore. A small lease policy change created losses of Rs 11 crore, while expenditure incurred on operating projects was shown as Rs 33 crore. When you consider that the company lost Rs 125 crore on operations, the total loss added up to over Rs 300 crore. We are facing a serious financial and liquidity problem, admits Mahajan, adding, the blame lies squarely with ICICI and IFCI.

To appreciate the companys war with the financial institutions, go back to 1994 when the then Rs 416 crore Parasrampuria Synthetics went in for an expansion-cum-diversification drive to treble its turnover by 1997-98. The Rs 535 crore plan involved setting up greenfield projects at Bhiwadi and Silvasa. A public issue to raise Rs 135 crore for the new projects was announced in June 1996. The issue flopped it remained undersubscribed with only 75 per cent subscription and the diversification plan came unstuck. Parasrampuria Synthetics ran into defaults and is now crying foul at the financial institutions decision to recall their loans.

An aggrieved employee complains that it was ICICIs idea to set off the company on the expansion course in the first place! They said that this was the only way to become competitive and achieve economies of scale. This was done with their consent and they ran away at the first sign of trouble.

Parasrampuria Synthetics contends that in May 1996, a month before the launch of the public issue, IFCI withdrew as a lead manager while ICICI reduced its underwriting assistance from Rs 10 crore to Rs 5 crore. Their attitude sent negative signals to the market and the company could not mobilise the funds, says an employee. Evidently, the companys own efforts at sending positive signals to the market did not pay off a source at Parasrampuria Synthetics confirms that a loss of Rs 29 crore on operations lurked behind the facade of profitability kept up for the sake of the public issue. This was done by creating a non-existent source of income: an interest income booked on debtors to the tune of Rs 30 crore. Parasrampuria Synthetics obviously believes in changing accounting policy according to the need of the hour.

ICICI, meanwhile, says that the consortium of FIs had sufficient ground for recalling the loans. The company had agreed to invest a part of its internal accruals to finance its expansion but that did not materialise. They were also asked to give a time bound programme for project completion which they failed to do, say sources. In August, ICICI moved the Mumbai High Court for liquidating the companys assets. But the court quashed the petition saying that the FI cannot behave as an ordinary finance company as it is a development institution.

Parasrampuria Synthetics sees this as a great moral victory. Should the FIs be allowed to write off sick, yet viable, productive assets for the sake of making their balance sheets attractive to shareholders? Ever since the FIs have gone public, commercial logic has become the prime mover and they have struck their development role off the charter, complains a senior executive who believes that ICICI is using Parasrampuria Synthetics as a test-case for quick recovery of dues. In its case before the Mumbai High Court, Parasrampuria Synthetics had stated: The company itself has proposed to sell assets to reduce institutional liabilities and the sale of these assets while the company is a running concern would fetch a higher value as against through the liquidation process which ICICI is trying to do.

The companys suggestion the sale of its non-profit making unit at Silvasa for Rs 170 crore and its terry towel division for Rs 25 crore to repay a part of its loan did not cut any ice with ICICI. As the leader of the consortium of lenders, ICICI is against piecemeal measures. Instead, it is pushing for total liquidation of the companys assets to settle creditors dues. We demanded that a court receiver be appointed who would be the custodian of all the assets of the company, say sources. ICICI finally had its way this month when the appellate court overruled the Mumbai High Courts ruling and appointed a receiver. Parasrampuria Synthetics responded by scurrying to the BIFR.

In just four days, ICICIs petition against Parasrampuria Synthetics move towards taking shelter in the BIFR will be heard at the Delhi High Court. If the courts verdict goes against the company, will it be the end of the road for Parasrampuria Synthetics? No, we will go to the Supreme Court, declares a source. Parasrampuria Synthetics may go down, but not before putting up a fight.

A receiver takes charge at the Rs 500-crore synthetics major, as it runs to the BIFR for help