BPL faces tough task

BPL Ltd, which is trying to swing a debt restructuring programme stretching over one and a half decades, will have to put in efforts beyond its capabilities if it is to get out of its debt troubles.

This is the picture that emerges from its latest annual report, according to a finance expert in the company.

The company, which has a debt pile of Rs 1,400 crore, made investments during its heydays which will in all probability not give any significant returns.

According to BPL Ltd's latest annual report, the company has made investments and loans and advances in the group's consumer, component, power and private finance companies totalling Rs 680 crore. Plus, trade advances amount to Rs 95.5 crore.

According to the expert, with this kind of resources locked up, it will require a Herculean effort from the company to wriggle out.

"The total return on investments of Rs 680 crore made in consumer, components, power and private finance companies will be virtually nothing since these investments have been funded through borrowing. "Adjusting for the cost of borrowing, the total return on those investments is minus 16 per cent per annum.

This implies almost Rs 108 crore of losses per year on account of the investments," the auditor said.

He added that the trade advances to the promoter's companies mean that BPL Ltd bears an additional loss of Rs 15 crore per year. However, a silver lining for BPL is that it is scouting for buyers for its power project in Andhra Pradesh which might ease the burden to an extent.

Highlighting further complications on account of the debt, the expert said: "To break even on its fixed assets investments of Rs 690 crore, BPL Ltd has to make at least Rs 112 crore of profit per year, which according to me is a tough task, given the current market dynamics."

In an effort to overcome this, BPL, according to its Corporate Debt Restructuring programme which is going through a lengthy process of finalisation, hopes to raise Rs 774.13 crore.

The company will get Rs 322 crore from the sale of its colour TV business to a 50:50 joint venture with Sanyo. In addition to this, BPL will get Rs 30 crore from the sale of its alkaline battery business, sale of investments under promoters' contribution of Rs 100 crore and internal accruals of Rs 221.3 crore.

On top of this it intends to raise Rs 92 crore from fresh term loans. The company already has a total outstanding of Rs 615.6 crore under term loans from 12 banks and financial institutions.

BPL is also in the process of raising Rs 92 crore from a foreign investor which will be used to meet the statutory liabilities of Rs 51 crore and unsecured creditor payments of Rs 15 crore.

The company has stated that the cost of restructuring will be Rs 746.2 crore under which capital expenditure will be Rs 25 crore in the first five years, outflow to creditors will be Rs 34 crore over five years.

BPL will shell out Rs 310 crore as upfront payment to banks and financial institutions in the first year, Rs 103 crore during 2-5 years and Rs 81 crore by way of interest over the entire five year period.