06 September 1997 00:00 [Source: ACN]
THE plight of Petrofils Co-operative has led to a proposal being put before the Indian government which calls for a change in restrictive company-rescue laws.
Petrofils is unable to raise funds on the capital market and cannot be taken over by a public-sector company. Indian Petrochemicals Corp Ltd (IPCL) is known to be keen to make Petrofils its subsidiary.
Hit by big losses of Rs97.7m (US$2.73m) in 1995-96 due to the erratic availability of raw materials coupled with unprecedented price hikes of over 50% (ACN 2 Sept 1996, p8), Petrofils also had to cope with a delay in stabilising commercial production of spandex fibre and production difficulties at a polyester chip plant.
The co-operative, a joint venture between the government and 1443 weavers' co-operative societies, faces ongoing problems of import liberalisation and a highly competitive domestic polyester market.
The banks and financial institutions have stopped further lending to Petrofils, deepening the crisis.
Because it is a co-operative, it cannot receive help under the Sick Industrial Companies (Special Provisions) Act, which provides for financial relief such as reduction in debt burden for companies with the potential to recover.
For the same reason, it cannot raise funds on the capital market and cannot be merged with a profitable and stronger company. Despite these restrictions, the Department of Chemicals and Petrochemicals (DCP) has for the last year been negotiating with financial institutions in a bid to rescue Petrofils.
The proposal to change the law has been put forward by companies and senior civil servants, including NR Banerji, secretary at the DCP.
He recently told the Standing Parliamentary Committee on Petroleum and Chemicals: 'Time and time again, the law, as it stands, prevents co-operative societies from accessing the capital market. If Petrofils was a corporation, it could easily raise bonds or arrange for its share capital to be disinvested.
'The second difficulty is that IPCL would be quite happy to take over Petrofils and make it a subsidiary company and run it well.
'However, because Petrofils is a co-operative, I have no means of permitting a public-sector company to take over it,' Banerji said.
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