SPIC BS Epaper
1
Once crippled by debt, SPIC resurrects itself After a turbulent decade, SPIC has staged an impressive rescue act, cleared 90% of its ~2,800 crore debt and begun focusing on its core competence: fertilisers TE NARASIMHAN Chennai, 6 December A lot has been spoken about India Inc’s growth story in the past few years, so it must be especially galling for one corporate house from Tamil Nadu which, in the last decade has completely missed the bus. SPIC, in its heyday was among the top ten industrial houses in the country and thrived during the license raj, but subsequently saw for- tunes slump, and dramatically so in the mid-2000’s. Now, however, thanks to a savvy restructuring programme and the scion of its erstwhile boss at the helm, SPIC has managed to emerge from the rubble of its past financial fiascoes. If so, this would be a phoenix-like ascent from the ashes of a misconceived corporate strategy, as well as rising debt that it was unable to coral in time until it became an albatross that sunk the com- pany. Yet, from a debt burden of around ~2,800 crore, its financial triage has man- aged to whittle that down by 90 per cent primarily by selling assets, injecting fresh cash into operations as well as convert- ing outstanding debt into equity holdings for lenders. It couldn’t have been easy. This meant flogging off properties, such as part of its landmark corporate office, ‘SPIC House,’ in Chennai. SPIC has also sold its busi- ness holdings in a variety of sectors including pharmaceuticals, bio-tech, SMO, Logistics, EDAC Engineering, por- tion of its shareholding in Manali Petrochemical and others. It booked ~140.48 crore in profits last fiscal, and the proceeds were used to settle secured debts. The man at the helm of SPIC is Ashwin C. Mutthia, who is a third generation scion of the MA Chidambaram (MAC) Group which founded SPIC along with Tamil Nadu Industrial Development Corp Ltd (Tidco) in 1969. Can Ashwin restore SPIC to its glory days? Sources say that Ashwin is now busy setting up a new manage- ment team by roping in professionals for both the corporate office as well as the factory as well. Born over lunch So far, it appears that opinions on whether Ashwin can propel the company to new heights and regain the dominant market share that it once enjoyed are evenly split. Critics and people who have been tracking the company for three or four decades question Ashwin’s ability and interest in the company. They say that sitting in Singapore (he is an NRI and lives there) isn’t the easiest way to manage the com- pany, that too at this critical juncture. Then, there are others who say that he will outperform his father and that Ashwin was one of the critical forces behind the recent restructuring and resur- gence of SPIC. Ashwin himself appears buoyant about the future. “All the unfor- tunate circumstances are now behind us. Things are looking good at present and would continue to do so,” says the 46-year old Chairman. How did SPIC end up in such a royal mess? To unravel this story, we need to go all the way back to 1969 when, as S Venkitaramanan, former vice chairman and president, SPIC and former Governor of RBI recalls, the idea of SPIC was born over a lunch, where he first discussed, the topic of fertiliser plant with industrialist MA Chidambaram and his son AC Muthiah. It so happened that DC Kothari who possessed a license for setting up a fertiliser plant at Tuticorin had aban- doned the idea. MAC had once said, “…my desire to start a manufacturing industry proved to be my destiny .” This was the chance he had been waiting for. Meanwhile , Venkitaramanan, who was Chairman of Madras Industrial Development Corporation as well as Additional Secretary —Industries, Government of Tamil Nadu at the time goaded MAC to act. “We made a sugges- tion to MAC to revive the same idea, fol- lowing which TIDCO and SPIC jointly applied for industrial license and this is the first project, under public private part- nership,” says Venkitaramanan. In 1969 he decided to set up the Tuticorin plant. At its peak, SPIC had a market share of 68 to 70 per cent in Urea and 65 to 70 per cent in cosmetic fertiliser. By mid-80s Spic’s turnover crossed ~500 crore and it became profitable. It invested in the LAB (bio-degradable raw material detergents) project of Tidco, named Tamil Nadu Petro Products. It also promoted Tamil Nadu Alkalines and Chemicals with Tidco to manufacture soda ash. SPIC Electronics was set up to manufacture computer magnetic tapes. Diversification woes Then came a series of questionable forays away from the company’s core compe- tence. Muthiah diversified to petrochem- icals, pharma, electronics, logistics, finance and other fields. While Muthiah said these diversifications was in the com- pany’s interest at the time. After all, there was more scope to become a conglomer- ate, and not a fertiliser company, consid- ering the limited prospects in a price con- trolled regime that fertiliser was mired in. All large businesses did this back then, said Muthiah earlier in an interview. However, industry representatives have felt that he diversified to unrelated areas, which back-fired later. In some cas- es, like Henkel the diversification was pos- itive, but diversification through SPIC Petrochemicals, which was supposed to put up a purified terephthalic acid (PTA) plant and a polyester filament yarn (PFY) project at Manali near Chennai and a for- ay into finance through MCC Finance took a toll on the company’s financial position and damaged the image of SPIC and Muthiah. Also, SPIC’s growth phase was mostly during AIADMK-rule in the state. However, things took a different turn when rival party DMK came into power in 1989. The DMK government examined SPIC’s shareholding in 1990 and declared that the Chidambaram family held far less than 25 per cent. Meanwhile, Muthiah had also taken over LCV-maker Standard Motors, after it launched the Standard 2000 car. He put in ~2 crore of his own money. However, the DMK did not allow him bring in funds from the other joint sector companies. Standard Motors became an election issue for Jayalalithaa-led AIADMK and SPIC’s fortunes changed overnight when her par- ty came back to power in 1991. It was allowed to put in ~6 crore through Tamil Nadu Petro Products. In 1992, when SPIC went in for a zero- bond issue on a rights basis for ~42.50 crore, Tidco renounced its rights to par- ticipate in this. The SPIC disinvestment case became an election issue for DMK. Jayalalithaa was accused of giving away SPIC to Muthiah virtually for free. Jayalalithaa’s defeat in the 1996 elec- tion was a big blow for SPIC. Liberalisation which a happened around the same time opened the business to competition, fur- ther weakening SPIC. As it is, SPIC’s cash reserves were leveraged in investments in other firms, such as Madras Refineries Ltd, Manali Petrochemicals Ltd, Tamil Nadu Petroproducts, and Arochem, all public sector joint ventures like SPIC. This didn’t stop SPIC from plunging into other businesses, such as an entry into deter- gents through a joint venture with Germany’s Henkel as SPIC Fine Chemicals Ltd. The company also invested in unre- lated ventures like SPIC electronics, SPIC Pharma (making Penicillin) and biotech. No surprise then, that instead of shoring up on cash reserves, the company had incurred debt of ~1,200 crore by the late 90s. The coup de grace for SPIC was the launch of ~1,500 crore SPIC Petroche- micals, Muthiah’s ambitious venture. It was supposed to be a joint venture between SPIC and Chennai Petroleum cor- poration, until the Madras High Court ended up issuing a stay order against the project when Muthiah decided instead, to go solo. Now, SPIC Petro was even barred from doing an IPO, and conse- quently its liabilities from its ~1,000 corer investment began soaring. To add to its woes, it needed to invest more to convert the existing naphtha-based operations at Tuticorin to gas-based operations. Through a build-up of interest rates and penal interest rates on unpaid loans, SPIC soon accumulated a debt of ~2,845 crore owed to a consortium of 30 banks Salvaging SPIC SPIC got a shot at survival when its loans were bought and managed by Arcil in DATE, which has been responsible for selling Spic’s assets and investments. After Arcil was through , all that was left of SPIC was the urea and DAP units in Tuticorin and in fact these units were also shut down between 2007 and 2010. Arcil and other lenders have converted part of their debts amounting to ~57.45 crore into equity as stipulated in the CDR rework package. The latest one to do so was Industrial Investment Bank of India Ltd(IIBI), which will convert its debt, worth ~60 crore, in SPIC to equity. Yet, in an impressive turnaround, SPIC has also more recently been able to pay ARCIL and other secured lenders ~825.55 crore as of March 2011. During this year the company has been able to clear ~465.55 crore for distribution to secured lenders, according to the company's annu- al report. As of March 31, 2011, ~547 crore to unsecured lenders. Comeback kid? With the company on the mend and the bills being paid, Ashwin Muthiah’s ambi- tion naturally to restore the luster to the flagship business of the family’s, name- ly fertilisers. The Indian Oil Corporation resuming supply of naphtha to SPIC’s Tuticorin plant has been a shot in the arm. Overall, the company is gaining momentum: SPIC reported 238 per cent increase in total income to ~1,762.47 crore during the year ended March 31, 2011, on the back of full quarter of operations in the Urea plant that commenced oper- ations in mid-October 2010, as compared to ~522.83 crore in 2009-10. SPIC’s profit for the year ended March 31, 2011 was ~81.98 crore. Not too shabby for a company that was written off just a few years ago. Spic’s Tuticorin fertilizer plant (above). Three generations of Chidambarams: AC Muthia (right), MAC (centre) and Ashwin (left) the new group head (below) Source: SPIC website SPIC’S VITAL STATISTICS Here’s a quick look at Spic’s rollercoaster financial ride and the composition of its portfolio Total Netprofit Income (-Loss) 2003-04 1,508.4 -9.4 2004-05 2,129.4 9.7 2005-06* 3,332.2 -390.8 2006-08* 1,533.5 -566.8 2008-09 429.2 -707.2 2009-10 522.8 -124.6 2010-11 1,762.5 82.0 *18 months Figures in ~crore
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SPIC NARRATIVE
Transcript of SPIC BS Epaper
Once crippled by debt, SPIC resurrects itselfAfter a turbulent decade, SPIC has staged an impressive rescue act, cleared 90% of its ~2,800 crore debt and begun focusing on its core competence: fertilisers
TE NARASIMHANChennai, 6 December
Alot has been spoken about IndiaInc’s growth story in the past fewyears, so it must be especially
galling for one corporate house fromTamil Nadu which, in the last decade hascompletely missed the bus. SPIC, in itsheyday was among the top ten industrialhouses in the country and thrived duringthe license raj, but subsequently saw for-tunes slump, and dramatically so in themid-2000’s. Now, however, thanks to asavvy restructuring programme and thescion of its erstwhile boss at the helm,SPIC has managed to emerge from therubble of its past financial fiascoes.
If so, this would be a phoenix-likeascent from the ashes of a misconceivedcorporate strategy, as well as rising debtthat it was unable to coral in time until itbecame an albatross that sunk the com-pany. Yet, from a debt burden of around~2,800 crore, its financial triage has man-aged to whittle that down by 90 per centprimarily by selling assets, injecting freshcash into operations as well as convert-ing outstanding debt into equity holdingsfor lenders.
It couldn’t have been easy. This meantflogging off properties, such as part of itslandmark corporate office, ‘SPIC House,’in Chennai. SPIC has also sold its busi-ness holdings in a variety of sectorsincluding pharmaceuticals, bio-tech,SMO, Logistics, EDAC Engineering, por-tion of its shareholding in ManaliPetrochemical and others. It booked~140.48 crore in profits last fiscal, and theproceeds were used to settle secureddebts.
The man at the helm of SPIC is AshwinC. Mutthia, who is a third generation scionof the MA Chidambaram (MAC) Groupwhich founded SPIC along with TamilNadu Industrial Development Corp Ltd(Tidco) in 1969. Can Ashwin restore SPICto its glory days? Sources say that Ashwinis now busy setting up a new manage-ment team by roping in professionals forboth the corporate office as well as thefactory as well.
Born over lunchSo far, it appears that opinions on whetherAshwin can propel the company to newheights and regain the dominant marketshare that it once enjoyed are evenly split.Critics and people who have been trackingthe company for three or four decadesquestion Ashwin’s ability and interest inthe company. They say that sitting inSingapore (he is an NRI and lives there)isn’t the easiest way to manage the com-pany, that too at this critical juncture.Then, there are others who say that hewill outperform his father and thatAshwin was one of the critical forcesbehind the recent restructuring and resur-gence of SPIC. Ashwin himself appearsbuoyant about the future. “All the unfor-tunate circumstances are now behind us.Things are looking good at present andwould continue to do so,” says the 46-yearold Chairman.
How did SPIC end up in such a royalmess? To unravel this story, we need to go
all the way back to 1969 when, as S Venkitaramanan, former vice chairmanand president, SPIC and former Governorof RBI recalls, the idea of SPIC was bornover a lunch, where he first discussed, thetopic of fertiliser plant with industrialistMA Chidambaram and his son ACMuthiah. It so happened that DC Kothariwho possessed a license for setting up afertiliser plant at Tuticorin had aban-doned the idea. MAC had once said, “…mydesire to start a manufacturing industryproved to be my destiny .” This was thechance he had been waiting for.Meanwhile , Venkitaramanan, who wasChairman of Madras IndustrialDevelopment Corporation as well asAdditional Secretary —Industries,Government of Tamil Nadu at the timegoaded MAC to act. “We made a sugges-tion to MAC to revive the same idea, fol-lowing which TIDCO and SPIC jointlyapplied for industrial license and this isthe first project, under public private part-nership,” says Venkitaramanan. In 1969he decided to set up the Tuticorin plant.At its peak, SPIC had a market share of 68to 70 per cent in Urea and 65 to 70 percent in cosmetic fertiliser.
By mid-80s Spic’s turnover crossed~500 crore and it became profitable. Itinvested in the LAB (bio-degradable rawmaterial detergents) project of Tidco,named Tamil Nadu Petro Products. It alsopromoted Tamil Nadu Alkalines andChemicals with Tidco to manufacture
soda ash. SPIC Electronics was set up tomanufacture computer magnetic tapes.
Diversification woesThen came a series of questionable foraysaway from the company’s core compe-tence. Muthiah diversified to petrochem-icals, pharma, electronics, logistics,finance and other fields. While Muthiahsaid these diversifications was in the com-pany’s interest at the time. After all, therewas more scope to become a conglomer-ate, and not a fertiliser company, consid-ering the limited prospects in a price con-trolled regime that fertiliser was mired in.All large businesses did this back then,said Muthiah earlier in an interview.
However, industry representativeshave felt that he diversified to unrelatedareas, which back-fired later. In some cas-es, like Henkel the diversification was pos-itive, but diversification through SPICPetrochemicals, which was supposed toput up a purified terephthalic acid (PTA)plant and a polyester filament yarn (PFY)project at Manali near Chennai and a for-ay into finance through MCC Finance tooka toll on the company’s financial positionand damaged the image of SPIC andMuthiah. Also, SPIC’s growth phase wasmostly during AIADMK-rule in the state.However, things took a different turnwhen rival party DMK came into power in1989. The DMK government examinedSPIC’s shareholding in 1990 and declaredthat the Chidambaram family held far less
than 25 per cent.Meanwhile, Muthiah had also taken
over LCV-maker Standard Motors, after itlaunched the Standard 2000 car. He put in~2 crore of his own money. However, theDMK did not allow him bring in fundsfrom the other joint sector companies.Standard Motors became an election issuefor Jayalalithaa-led AIADMK and SPIC’sfortunes changed overnight when her par-ty came back to power in 1991. It wasallowed to put in ~6 crore through TamilNadu Petro Products.
In 1992, when SPIC went in for a zero-bond issue on a rights basis for ~42.50crore, Tidco renounced its rights to par-ticipate in this. The SPIC disinvestmentcase became an election issue for DMK.Jayalalithaa was accused of giving awaySPIC to Muthiah virtually for free.
Jayalalithaa’s defeat in the 1996 elec-tion was a big blow for SPIC. Liberalisationwhich a happened around the same timeopened the business to competition, fur-ther weakening SPIC. As it is, SPIC’s cashreserves were leveraged in investmentsin other firms, such as Madras RefineriesLtd, Manali Petrochemicals Ltd, TamilNadu Petroproducts, and Arochem, all
public sector joint ventures like SPIC. Thisdidn’t stop SPIC from plunging into otherbusinesses, such as an entry into deter-gents through a joint venture withGermany’s Henkel as SPIC Fine ChemicalsLtd. The company also invested in unre-lated ventures like SPIC electronics, SPICPharma (making Penicillin) and biotech.No surprise then, that instead of shoringup on cash reserves, the company hadincurred debt of ~1,200 crore by the late90s.
The coup de grace for SPIC was thelaunch of ~1,500 crore SPIC Petroche-micals, Muthiah’s ambitious venture. Itwas supposed to be a joint venturebetween SPIC and Chennai Petroleum cor-poration, until the Madras High Courtended up issuing a stay order against theproject when Muthiah decided instead,to go solo. Now, SPIC Petro was evenbarred from doing an IPO, and conse-quently its liabilities from its ~1,000 corerinvestment began soaring. To add to itswoes, it needed to invest more to convertthe existing naphtha-based operations atTuticorin to gas-based operations.Through a build-up of interest rates andpenal interest rates on unpaid loans, SPIC
soon accumulated a debt of ~2,845 croreowed to a consortium of 30 banks
Salvaging SPICSPIC got a shot at survival when its loanswere bought and managed by Arcil inDATE, which has been responsible forselling Spic’s assets and investments. AfterArcil was through , all that was left ofSPIC was the urea and DAP units inTuticorin and in fact these units were alsoshut down between 2007 and 2010. Arciland other lenders have converted part oftheir debts amounting to ~57.45 crore intoequity as stipulated in the CDR reworkpackage. The latest one to do so wasIndustrial Investment Bank of IndiaLtd(IIBI), which will convert its debt,worth ~60 crore, in SPIC to equity.
Yet, in an impressive turnaround, SPIChas also more recently been able to payARCIL and other secured lenders ~825.55crore as of March 2011. During this yearthe company has been able to clear~465.55 crore for distribution to securedlenders, according to the company's annu-al report. As of March 31, 2011, ~547 croreto unsecured lenders.
Comeback kid?With the company on the mend and thebills being paid, Ashwin Muthiah’s ambi-tion naturally to restore the luster to theflagship business of the family’s, name-ly fertilisers. The Indian Oil Corporationresuming supply of naphtha to SPIC’sTuticorin plant has been a shot in thearm. Overall, the company is gainingmomentum: SPIC reported 238 per centincrease in total income to ~1,762.47 croreduring the year ended March 31, 2011,on the back of full quarter of operationsin the Urea plant that commenced oper-ations in mid-October 2010, as comparedto ~522.83 crore in 2009-10. SPIC’s profitfor the year ended March 31, 2011 was~81.98 crore.
Not too shabby for a company that waswritten off just a few years ago.
Spic’s Tuticorin fertilizer plant (above). Three generations of Chidambarams: ACMuthia (right), MAC (centre) and Ashwin (left) the new group head (below)
Source: SPIC website
SPIC’S VITAL STATISTICSHere’s a quick lookat Spic’s rollercoaster financial ride and the composition of its portfolio
Total NetprofitIncome (-Loss)
2003-04 1,508.4 -9.4
2004-05 2,129.4 9.7
2005-06* 3,332.2 -390.8
2006-08* 1,533.5 -566.8
2008-09 429.2 -707.2
2009-10 522.8 -124.6
2010-11 1,762.5 82.0
*18 months Figures in ~crore
