News

Jenson and Nicholson to hive off industrial coatings division

The 78-year-old paint major Jenson and Nicholson (India) Limited is considering to hive off its industrial coatings division as part of its massive restructuring exercise. Highly placed officials of the company said a final decision in this connection would be taken at a meeting of the board of directors shortly. The company has 33 branches in the country.

A resolution pertaining to this effect was earlier moved under section 293 (1)(a) of the Companies Act, 1956 and the board of directors will fix a date for convening an extraordinary general body meeting (EOGM). J&N chairman S.P. Sinha has said the overall restructuring plan, which includes formation of three strategic business units of manufacturing, industrial coating and decorative paints, envisaged prioritisation of products and markets. The company had recently decided to raise Rs.20 crore through various options, such as optionally convertible debentures or any other equity linked instrument.

A conscious decision had been taken earlier to fund operations without market borrowings even as the instacolor project, pioneered by the company, needed constant funding to sustain market share. Though earlier the company had explained to increase its market share in the industrial coatings to 15 per cent from ten per cent within the next few years, but now, with the new decision, it will have to re-organise strategy. The sale of industrial coatings division would follow the sale of J&N Nepal to Berger Paints last year and many in the industry believed the new sale would also be to the same company.

Rajan Raheja Group to hike stake in Prism Cement

The Rajan Raheja group is hiking its stake in the loss-making cement arm, Prism Cement, from 45 per cent to 51 per cent through a financial restructuring involving the conversion of a part of the debt into equity. The conversion will increase the company’s share capital from Rs.256 crore to Rs.297 crore.Prism Cement Company will convene an extra-ordinary general meeting shortly to obtain shareholder approval to convert debt aggregating Rs.41 crore into equity. The unsecured loan was extended by the promoters.

Currently, Prism Cement has a debt of Rs.391.9 crore, of which secured loans aggregate Rs.326.8 crore and unsecured loans Rs.65.1 crore. While the Raheja group will increase its stake to a majority at 51 per cent, the shareholdings of Denmark-based S & N Smith and International Finance Corporation, which hold 11 per cent and 5 per cent respectively in the company, will come down marginally.

The Rs.380-crore Prism Cement, which operates a two million tonne cement facility in Satna, Madhya Pradesh, has been hit hard by the downturn in the cement sector, reporting losses of Rs.27.9 crore during ’99-00. The company, which feeds the markets of Uttar Pradesh (the second largest market after Maharashtra), Madhya Pradesh and Bihar, posted a Rs.11-crore loss during the first quarter of the current fiscal. The company’s net worth aggregates Rs.140 crore.

Govt. adds 5,700 Km to road project

The government has announced the addition of 5,694 km to the national highway network taking the national highway (NH) cover to 57,704 km. The cost of upgrading the 5,694 km road stretches to NH standards would cost Rs.7,000-Rs 8,000 crore over a period of three year. Adding funds to the tune of Rs 1,500 crore have been negotiated with private players. Talks are on to tie up Rs.1,500 crore more from private parties. The choice of the identified sites for upgradation was on the basis of traffic density and with an effort to bring the most populous and backward states on the growth track. Regional imbalances have been removed while notifying new national highways. Bihar and Uttar Pradesh account for chunk of the stretches dressed up for upgradation.

On the strengthening of national highways, apart from budget allocation for this purpose, the ministry of surface transport is very open to private participation in the road where the traffic density is high. In the last fiscal, nearly 8,000 km of NH had good riding quality. This fiscal, the target is to improve the riding quality of 10,000-12,000 km of NH.The number of NHs at the time of independence was 21,450 km and it reached 34,298 km at the end of the eighth plan.

Convergence Infotech launches buildingsteps.com

Convergence Infotech Ltd. has launched ‘buildingsteps.com’, a portal for the architect and design industry facilitating building, architecture and design services. The portal has a registered base of 6,000 professionals and designers spread across 22 cities within the country.

Guj Ambuja completes ACC Takeover

The Tata group has finally exited from ACC. The Gujarat Ambuja group has acquired the last tranche of 3.05 per cent equity in the cement company from the Tatas, at the agreed price of Rs.370 per share.

The last leg of the transaction has been completed at a total consideration of Rs.193 crore.

Ambuja Cement India (ACIL), subsidiary of Gujarat Ambuja Cements, has paid Rs.193 crore for the 52 lakh shares in ACC, taking the total price paid for the 11.4 per cent stake to Rs.925 crore. As against the buyout price of Rs.370 per share, the ACC scrip price ended at Rs.86.55. Following the deal, ACIL has been recapitalised with the partners - Gujarat Ambuja Cements, American International Group (AIG) and Government of Singapore Investment corporation (GIC)-bringing in their share of contribution. The company’s share capital, as a result, has increased from Rs.397 crore to around Rs.590 crore.

Ambuja Cement India is 60 per cent owned by Gujarat Ambuja, while the two high-profile foreign investors hold the balance 40 per cent stake. The "strategic alliance" has catapulted GACL into the big league giving it immediate control of 20 million tonnes (mt) of cement capacity, out of the country’s total capacity of 100 mt.

Ordinance for creating a central road fund cleared

The Union cabinet has approved the promulgation of an ordinance for the creation of a central road fund. This fund will be dedicated to the development and maintenance of roads and highways. The government had imposed a cess of Re 1 on petrol and diesel to mop up funds for the development of roads. The fund will be part of the existing central road fund, under which levy of additional cess on petrol and diesel is collected. However, to ensure the non-lapsable character of the dedicated road fund, the government now wants to go ahead with the promulgation of an ordinance. The government had already imposed Re 1 additional excise duty on petrol in ’98-99 and subsequently in ’99-00 an additional duty of Re 1 per litre of high speed diesel was levied. However, in the absence of a dedicated road fund the amount so collected was not earmarked for road development, although the government provided a certain part of the collected amount for highway development last year (Rs.1,900 crore). Now, with the creation of the road fund (through the ordinance), the government wants to ensure that the amount becomes non-lapsable.

The primary objective of the ordinance will be to expedite implementation of NHDP, besides incorporating the concept of user pays for utilising an upgraded facility. The fund once created, will be administered by the road wing of surface transport ministry.

Tata Chem considers cement unit hive-off

Tata Chemicals’ cement division is now under the microscope, soon after the company has decided to exit its detergents business. The company’s management is exploring the possibility of hiving off the cement division, either into a separate company within the Tata fold, or going in for an outright sale to any other company. Alternatively, the cement business may even be spun off as a joint-venture, with a strategic partner managing the show.

The company’s cement business accounted for Rs.52.5 crore of total income (3.4 per cent) during the year ended March 31, ’00 Tata Chemicals is into the manufacture of pozzolona portland cement and has a total capacity of 4.4 lakh tonnes, which can be stepped up to 9 lakh tonnes. Tata Chemicals’ cement is marketed by the Associated Cement Companies (ACC) and though the Tatas have offloaded their stake in ACC in favour of Gujarat Ambuja Cement, the marketing agreement remains. Meanwhile, in order to emerge as more efficient company, Tata Chemicals is now focusing on what it calls the 3 Cs-customer, cost and communications. A major cost reduction exercise is also underway at the company.

Road projects may crash even before take off

The government has ambitious plans to develop the highways, construct rural roads, roads in the states and build bridges and fly-overs at unmanned crossings. To support these projects, it had introduced a cess on petrol a Rs.1 per litre in June 1998. This was followed by a similar cess on diesel in April 1999.

Of the total proceeds from these cess-estimated to be about Rs6000 crore per annum, the government proposes to use 50 per cent for development of rural roads. Of the remaining half, 57.5 per cent or Rs.1725 crore will be used for construction of national highways, 30 per cent, i.e., Rs.900 crore for state roads and balance 12.5 per cent or Rs.375 crore for building bridges and fly-overs at unmanned crossings.

The projects in the road sector face a peculiar problem. Unlike in other areas, wherein the assets created from investment can be pledged for raising (loans from financial institutions (FIs), a road or highway cannot be mortgaged. However, proceeds from the cess which are mandated for use exclusively for building roads/highways can be used as an acceptable collateral. This removes a major hurdle in the way of mobilising funds from FIs.

The above arrangements are broadly similar to those in vogue in respect of cess on domestic crude. The cess was introduced in 1974 through a special Act of Parliment, which also provided for the setting up of the Oil Industry Development Board (OIDB). The OIDB was required to ensure use of cess proceeds exclusively for development, marketing and research in the oil sector.

This has dangerous portends for projects in the road sector. These will not only be deprived of funds from the government but also from FIs as their exposure would remain largely uncovered. The ambitious programme for development of roads (including rural roads) and highways will crash even before it takes off.