The Hindu Business Line : Banks, FIs against Morepen's FD conversion plan

BANKS and financial institutions have raised objections to Morepen Laboratories Ltd's (MLL) proposal to allow the fixed deposit (FD) holders of the company to opt for a conversion of their FDs into fully convertible debentures (FCDs).

They have approached the Himachal Pradesh High Court on this issue. The proposal of Morepen for restructuring a portion of its FD dues into FCDs is already before the High Court.

Company sources said that the banks have held that they are the secured creditors and, therefore, their dues should be cleared first and not those of the FD holders, who are basically unsecured creditors. As on date, the outstanding to 80,000-odd FD holders stood at about Rs 160 crore.

Since FD holders opting for the conversion would insist on an exit route for the equity exposure to the company after the conversion of FCDs, Morepen had approached the Security and Exchange Board of India (SEBI) on the possibility of getting such shares listed in the stock exchanges.

SEBI, however, expressed reservations on allowing such converted equity to be listed without any directions from any court. It suggested that as this was a financial restructuring, the company could approach the regulator under the corporate debt restructuring route or by complying with Section 391(6) of the Companies Act, whereby clearances from the High Court is required for restructuring.

"SEBI felt that currently there are no guidelines to list these shares as this scheme neither falls under a preferential allotment where a maximum of 50 new shareholders are listed nor does it fulfil the requirement for an initial public offer as there is no cash flow," said sources.

Morepen is now awaiting a decision from the Himachal Pradesh High Court. A retired High Court judge has already been appointed to arbitrate between the company and fixed deposit holders and a decision is awaited.

Mr Sushil Suri, Chairman and Managing Director, MLL, said, "We have only provided this scheme as an option. Those who do not want to take up this offer will be repaid under the scheme approved by the Company Law Board (CLB)."

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