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Mafatlal still struggling to get out of the woods — Polyolefins rights issue to pay debts

Archana Chaudhary

Although MIL remained a high-profile group of companies up to mid-1990s, before year 2000 arrived, losses and debt had mounted high. And the company was declared sick on September 19, 2000.

Mumbai , Oct. 6

POLYOLEFINS Rubber Chemicals Ltd closed its rights issue on September 24. An innocuous bit of news except that the company is part of the renowned Mafatlal Group. And the rights issue is part of the troubled group's efforts to raise funds to pay its long list of debtors.

From being one of the most prominent and successful industrial houses in India to fighting a still-ongoing decade-long battle to climb out of financial and legal quagmires, the Arvind Mafatlal Group seems to have seen it all.

The rights issue, expected to raise Rs 90 crore from existing shareholders, will help Polyolefins Rubber Chemicals (PRCL) contribute the entire amount raised as part of promoters' contribution for the rehabilitation of Mafatlal Industries Ltd (MIL).

"We have seen the best and the toughest times befall this group," said Mr Govind Mohite, Deputy Chairman of the Rashtriya Mill Mazdoor Sangh. The company employed - by his account - close to 15,000 workers at its five textile units in Mumbai and Gujarat in the early 1980s.

The group that has interests in textiles, information technology, fine chemicals and chemicals intermediates was at one time one of the most profitable business houses in India and is still well-respected for attempts to shake off perhaps the longest spell of bad luck an Indian company has ever seen.

"The textile strike by Datta Samant's union in 1982 could be called the beginning of a chain of problems for the group. Export losses mounted thanks to the rising duties on various imported raw materials and this led to mounting debts. Of course, there were some personal tragedies in the lives of the promoters... The group is still recovering from it all," said an ex-employee of MIL, who did not wish to be named.

Although MIL remained a high-profile group of companies up to mid-1990s, before year 2000 arrived, losses and debt had mounted high. And the company was declared sick on September 19, 2000.

While one of its Mumbai textile units had to be closed, its three units in Gujarat continued to function. Among the chemicals businesses, National Organic Chemical Industries Ltd (NOCIL) tried in vain to chase the shadows of foreign collaborators to save its day, while Mafatlal's high value real estate and investments in Mumbai continued to be sucked into litigations slapped by creditors, shareholders and even the Enforcement Directorate.

According to the corporate restructuring package approved by the courts, MIL was trifurcated into three companies. The chemicals division was demerged into Polyolefins Rubber Chemicals Ltd (soon to be renamed Navin Fluorine) and various assets and investments were transferred to Sulakshana Securities Ltd. The textiles business remained Mafatlal Industries Ltd.

NOCIL, which saw losses, not including income-tax, excise and other claims, mount to close to Rs 28 crore, was demerged into Nocil Petrochemicals, which continues to hold the group's existing petrochemicals assets and plastics business. The rubber chemicals division was sold to Sunbright Cement Agencies Pvt Ltd, a subsidiary of Reliance Industries, in January this year.

Although some creditors, including ICICI Ltd and ILFS have recovered loans worth Rs 98.41 crore and Rs 9.75 crore respectively, MIL still has to repay a substantial amount of its liabilities worth Rs 257.79 crore to financial institutions.

PRCL, which is expected to bring in Rs 90 crore in MIL, had already infused close to Rs 85.05 crore till June 2004, according to its rights offer document submitted to SEBI.

"The issue has been subscribed, though we cannot release details. The company will announce details in a couple of weeks," said an official at J.M. Morgan Stanley, lead managers to the issue.

But there are still more than 300 different litigation - criminal and civil - by and against the company that have to be sorted out. Yet, bankers and employees believe that one of the oldest industrial houses of India can make it through.

The group is struggling with its voluntary retirement payments to employees. According to the offer document, while 2,380 workers in Gujarat have been paid VRS dues worth Rs 36 crore in full as on October last year, 2,643 workers in Mumbai have received the first instalment of Rs 23.26 crore out of the total Rs 84.07 crore VRS dues.

"They (Mafatlal Group) have always tried to pay off their dues, unlike a lot of other big names especially in the textiles business who have left their employees high and dry and have filled their own coffers by selling mill land as expensive real estate in the heart of Mumbai," said Mr Mohite.

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