BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION

Case No.70/2006 Duncans Industries Ltd. (DIL)
7.2 Inadequate working capital:
i. In accordance with the CDR Package approved by the CDR Empowered
Committee vide its letter dated 15 th October 2004, the Banks were to
provide Rs 62 Cr of additional Working Capital facility for recommencement
of the operation at the fertilizer plant against an additional exclusive security
of 2.89 Cr equity shares of M/s Andhra Cements Ltd (ACL) held by M/s
Boydell Media Pvt Ltd, a company of Duncan Goenka Group, to be pledged
in favour of Banks. The banks sanctioned additional working capital facility
of Rs 56.45 Cr while the balance Rs 5.55 Cr (State Bank of Patiala was not
agreeable to finance) was brought in by the promoters along with their
contribution of Rs 25 Cr. Necessary pledge in favour of banks was created
on 2.89 Cr shares of Andhra Cements Limited (ACL) exclusively securing
the above limit of Rs 56.45 Cr.
ii.
iii.
Upon implementation of the package, the lay-off was lifted w.e.f. 8 th July,
2005, understanding with IOC (Naphtha provider) and KESCO (electricity
provider) were arrived at to ensure the smooth availability of raw materials
and power. The production at the plant recommenced on 30 th August, 2005.
After the unit re-started the operations in August, 2005, subsidy was again
delayed from GoI and entire working capital of the company got locked-up in
the subsidy receivable and plant operations had to be again suspended
w.e.f. 18.10.2005. The company approached the Department of Fertilizer /
FICC for release of subsidy which was pending for disbursement and also
got assurance that in future the subsidy will be released in time. With the
expectation that the Department of Fertilizer / FICC shall take some positive
action on the request of the Company, it embarked upon the program to
carry out certain essential repairs and maintenance of the plant which was
necessary to ensure the continuity of stable production at desired efficiency
levels. However, the subsidy amounting to Rs 25 Cr could only be released
in the month of February 2006. By that time, the price of Naphtha, which is
a major raw material, constituting more than 60% of the cost of production
of urea, increased from Rs 23,500 per MT (in the month of July-Sept,05) to
Rs 31,300 per MT (in the month of April,06). Though the increase in price
of Naphtha was to be compensated to the company as part of subsidy but it
had major implication in the working capital requirement of the company.
The increase in price of naphtha coupled with delay in disbursement of
subsidy led to acute shortage of fund and increased the working capital
requirement for the operation.
The Company requested banks to provide further support to overcome the
liquidity problem caused due to locking of funds in the subsidy. The matter
was discussed with the banks and it was suggested to explore the alternate
possibility to tie-up the working capital requirement by way of credit from
Indian Oil Corporation (IOC), the sole supplier of Naphtha to the Company,
as a long-term solution. IOC in principle was agreeable to supply the
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