Financial institutions have opposed the proposal of Finolex Cables Ltd to lease or sell the company's two million core kilometer (CKM) jelly-filled telecom cables (JFTC) capacity to a new subsidiary, Finolex Telecommunication Private Ltd.
Following stiff opposition from FIs and shareholders over the proposed transfer of capacity, the management of Finolex Cables has now decided to delete `sale' and will now go in for only lease or rental.
The FIs have raised several queries over the proposed transfer of the company's JFTC capacity, including the viability of the new company, basis of consideration to dispose off the capacity. The FIs have also sought several other clarifications, including the valuation report, return down value of fixed assets to be transferred, profitability of the company after the proposed transfer and the shareholding pattern in the new company.
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The FIs led by LIC and UTI have written to the company, expressing their reservation on the issue of transfer of capacity to a new subsidiary. Several individual shareholders, too, have expressed their opposition to the proposal of transfer of capacity.
FIs hold around 20 per cent of the equity share capital in Finolex Cables, while 44 per cent is held by the Chhabria family and other promoters and the balance by the public.
The shareholders of Finolex Cables at the annual general meeting held here on Wednesday, allowed the company to pass the resolution on transfer of capacity to the new company subject to approval from FIs, and with an amendment that the capacity of Finolex Cables will not be sold to any other company.
Defending the move to float Finolex Telecommunication, P P Chhabria, chairman of Finolex group, allayed the fears of the shareholders that shareholder value will drop with the proposed transfer.
He said that Finolex Cables could charge royalty for transfer. In fact, Chhabria claimed that the move, to transfer will help bring in increased orders from DoT, is more inclined towards groups which have several companies within its fold quoting for the tenders.
"We will give it only on lease or rental and not sell. There is now outsider in Finolex Telecommunication. The resolution is not a must if its not beneficial to the shareholders," Chhabria clarified, while giving in to stiff opposition from the shareholders.
He said that the company continued to make efforts to reduce its dependence on DoT. With modernisation and expansion of its light duty cables (LDC) unit at Pimpri, the production of LDC has gone up. As a result, the relative sales of JFTC in the company's total sales declined from 61 per cent in 1995-96 to 54 per cent in 1997-98.
During the first-month period to August 1998, sales were up by 10 per cent, as compared to the corresponding previous period.
The company has bagged an export order worth Rs 9.10 crore for the supply of JFTC to Sudan Telephone Company of Sudan, against stiff international competition. This order will be executed in the current year. It also plans to export telephone and submersible cables.
Initial trial order for supply of CAT 5 co-axial cables for export to West Asian countries has been executed in the current month.