Thumbs Down For Classic Bailout

One section of the market, however, feels that the price crash was due to profit taking as the stock had moved up heavily in the past one week.

The market's suspicion of the bailout plan is on two counts. One, the Rs 200 crore infusion of funds into ITC Classic is only through sale of assets. The asset stripping may get the company immediate cash, but it makes the prospects of finding a buyer/partner for ITC Classic that much more difficult. Classic will be reduced to a shell, making it impossible to find buyers.

Secondly, there is no telling how much more funds will be required in Classic. The exact extent of Classic losses is not known and nor is the quality of its loan portfolio. Classic's assets may be sold off piecemeal, but soon this avenue will be exhausted. Thereafter, the entire onus of supporting Classic will fall on the parent.

 

But an analyst at a leading FII said that it was inevitable that ITC take desperate measures to revive Classic, after it failed to find buyers. The real estate deal, he said, could turn out to be a good investment for ITC if the real estate market picked up.

But if after window dressing Classic's accounts, ITC is able to find a buyer, it would only be too happy to sell it off. At stake is the Rs 123 crore equity investment, made through its subsidiaries.

Also, blocked in the Classic imbroglio is the future of ITC Agro Tech, where global food major ConAgra is supposed to pick up a stake. The deal is subject to clearance by banks and financial institutions, who refuse to clear the deal till Classic's overdues are paid off.

Possibly, the bulk of the fresh funds will go towards bank dues, leaving very little funds for Classic's own use.