The Hindu Business Line : Jessop & Co plans 5:1 rights issue

JESSOP & Co today announced plans to come out with a Rs 50-crore rights issue of shares of Re 1 each approximately at the rate of five new shares for each existing share held.

Market analysts say that as the Centre currently owns a 27-per-cent stake in the company, the issue may mark an increase in the shareholding of the Ruia Group to approximately 94 per cent in case the Government of India does not subscribe to the issue. In that event, the Centre's shareholding may decline to just five per cent. The company now has a mere 1 per cent public shareholding.

It may be noted that as per the shareholders agreement and the guidelines stipulated by the BIFR for the proposed rights issue, none of the promoters can divest rights in favour of a third party.

Further, the Centre will have to offer its stake to the Ruia group at the end of a three-year period on August 29, 2006. Earlier, the Ruia group had offered to buy back the Centre's stake offering a price higher than the acquisition price of Rs 2.67 per share (against a face value of Rs 10 per share).

Meanwhile, after getting BIFR approval, the company has reduced the face value of its shares from Rs 10 to Re 1 each leading to a reduction in the paid-up equity capital from Rs 95 crore to Rs 9.5 crore. The exercise has created a fund of Rs 85.5 crore which was set off against an accumulated loss of Rs 118 crore as on March 31, 2005.

Mr Ruia said: "With a Rs 50-crore capital infusion in the form of rights, the paid-up equity base will be Rs 59.5 crore (as against an accumulated loss of Rs 32.5 crore) making the company's networth positive which in turn will help the company to be delisted from BIFR".

He added that delisting from BIFR would help the company to secure bank finance for its future projects.

On the rights issue, he said it would meet the working capital needs of the company. "Jessop requires a total of Rs 150 crore to finance Rs 30 crore capital expenditure, Rs 70 crore working capital requirement and Rs 50 crore non-fund capital requirement primarily for issuing bank guarantees to railways, and so on."

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