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Dunlop rejigs assets to raise $90m loan

Calcutta, Dec. 23: Pawan Ruia has used his financial ingenuity to clean up Dunlop India’s books by raising loans of $90 million from a clutch of offshore hedge funds led by Spinnaker Capital — setting the stage for a clawback into profits by 2009.

Ruia has achieved what Manu Chhabria tried to do for years: leverage Dunlop’s real estate reserves without falling foul of regulations.

Spinnaker and three other hedge funds have provided the six-year loan and retained the option of picking up a 15 per cent stake in the company in lieu of a loan payback.

“The loan has been taken for a period of six years and at an interest rate of Libor (London inter-bank offer rate) plus 6.5 per cent, which works out to be 11.5 per cent,” said Pawan Ruia, chairman of Dunlop India.

“The Spinnaker group has the option to buy 14.99 per cent equity in Dunlop India from DRW (DIL Rim and Wheel Corporation Ltd). If they don’t exercise the option, then DRW will have to pay an interest rate of 20 per cent. The investors wanted a return of 20 per cent from the investment,” Ruia added.

The loan will help the company write off all its legacy loans. “We will be almost a debt-free company by the financial year 2008-09,” Ruia said.

The financial restructuring has been done through a two-step process.

First, Ruia got all the real estate properties, plant and machinery of the company revalued in 2006-07. It increased the book value of the fixed assets of Dunlop India more than 10 times.

The revaluation of core assets (plant and machinery, factory land and building, offices and warehouses) increased the reserves in Dunlop’s balance sheet to Rs 1,072.07 crore as on March 31 this year from Rs 100.54 crore at the end of 2005-06 and improved the company’s net worth to Rs 1,400 crore.

Second, the non-core real estate assets of the company worth Rs 320 crore were transferred to four subsidiaries: Dunlop Properties Private Ltd, Dunlop Infrastructure Private Ltd, Dunlop Estates and Bhartiya Hotels.

New entities

The first three companies were formed in February. Bhartiya Hotels Ltd has been in existence before Singapore-based WealthSea Pte Ltd, the holding company of the Ruias, bought out the Chhabrias from Mauritius-based DRW, which has a 74.5 per cent stake in the tyre maker.

Dunlop India’s investment subsidiary, Dunlop Investments Ltd, is the holding company of all these four companies.

Dunlop Estates bought real estate worth Rs 30 crore from Dunlop India, while Dunlop Properties acquired assets worth Rs 80 crore. Dunlop Infrastructure picked up assets worth Rs 60 crore and Bhartiya Hotels, Rs 150 crore.

DRW simultaneously set up two wholly owned subsidiaries in Mauritius. Dunlop Investments then sold the entire stake in two of the real estate companies floated here to each of the DRW subsidiaries in Mauritius.

“The loan raised by DRW will ultimately come to Dunlop India and it will be used to repay the company’s old loans, sundry creditors, refurbish the Sahaganj factory and meet working capital requirements,” Ruia said.

Meanwhile, Dunlop India has taken a loan of Rs 121 crore from Deutsche Bank pledging its Mumbai property.

The company has legacy loans worth Rs 7.5 crore from Catholic Syrian Bank and Rs 3.7 crore from Karnataka State Industrial Development Corporation.

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