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Saturday, Jan 24, 2004

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Proposal to raise $100 m — Ashok Leyland paid-up equity may rise 15 pc

M. Ramesh

Chennai , Jan. 23

ASHOK Leyland expects its paid-up equity to increase approximately 15 per cent, after the proposed $100 m (Rs 460 crore) funds raising.

Senior officials told Business Line today that the $ 100 m could be either through the an GDR issue or an issue of Foreign Currency Convertible Bonds — bonds that could be optionally converted into equity shares — or both.

"Some clarity will emerge on this in a few days," sources said.

Currently, FCCB appears to be the favoured option, because the company can raise debt funds at extremely low rates of interest, around 1 per cent. The sweetener to the bond subscriber is the option of converting into equity shares at a price that will be in his favour, after at least two years.

Even then, Ashok Leyland would convert the bonds into shares and get a higher premium, than it would if it went ahead with a GDR issue now. A GDR issue would have to be made at a discount at the prevailing market price (around Rs 275).

But assuming that the conversion is made at a price of, say, Rs 300 two years hence, when the market price of the Ashok Leyland share is around, say, Rs 375, both the company and the investor would benefit — the company because it gets a higher premium for its share and the investor because he gets the shares at a price lower than the market price.

Ashok Leyland sources said that the funds would be deployed in expanding the capacity of the three main elements of the vehicle — engine, gearbox and cab.

Engine expansion will happen at a cost of around Rs 120 crore at the company's Hosur-I plant. This will raise the capacity of the favoured engine, Hino H-series, from about 65,000 to 75,000. Alongside, the company will also begin to produce the Hino J-series engines, for new bigger and modern vehicles.

Expansion of gearbox facility will happen at the Bandara plant at a cost of about Rs 100 crore. Ashok Leyland produces synchromesh gearboxes in collaboration with ZF of Germany. Post-expansion, the company will be able to make 67,000 ZF gearboxes, up from 45,000 now. Alongside, the company will also be making the constantmesh gearboxes from its Ennore plant.

Ashok Leyland will also invest around Rs 50 crore in building a plant that will produce cabs for larger (multi axle) vehicles.

The entire expansion programme will be over by March 2005. Then, Ashok Leyland will be able to produce 75,000 trucks from 50,000 now.

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