Mumbai: Indo Rama Synthetics India Ltd (IRSIL) has decided to separate its spun yarn and polyester businesses as two separate companies apart from restructuring the share capital of the company.

The board of directors of the company at its meeting held today has approved the draft scheme of separation of its spun yarn and polyester businesses as two separate companies and restructuring the share capital of the company.

Accordingly, the spun yarn business of the company will be segregated into a new company by way of a demerger under section 391-394 of the Companies Act, 1956, through an order of the court.

The spun yarn business will be transferred to Indo Rama Textiles Ltd (IRTL) on a going concern basis, with effect from the appointed date (1 April 2002). The polyester business, including draw texturised yarn, shall remain with the company IRSIL. The equity share capital of the existing company IRSIL will be split in the ratio of 80:20 between the existing company and the new spun yarn company IRTL.

The equity shareholders of the new company IRTL (spun yarn business) will have the option to convert their equity share into a redeemable preference share of Rs 10 (redeemable at a premium of Rs 20). The redemption shall be in two instalments of 25 per cent and 75 per cent of the total value at the end of six and 15 months, respectively, from the date of completion of all formalities as required by the law. The coupon rate on preference share shall be 0.1 per cent.

The equity shareholders of the existing company will have the option to convert their equity share into a debenture of Rs 10 (redeemable at a premium of Rs 20). The redemption shall be in two instalments of 25 per cent and 75 per cent of the total value at the end of six and 15 months, respectively, from the date of completion of all formalities as required by the law. The coupon rate on the debentures shall be 0 per cent.

In both the cases the amount of conversion shall be restricted to 20 per cent of the equity share capital of the respective companies (prior to the conversion). In the event of optional conversion exceeding 20 per cent of the equity capital, the shareholders will be allotted the preference shares and debentures on a pro rata basis.

As an integral part of the restructuring, the accumulated losses appearing in the balance sheet of the company as on 31 March 2002 amounting to Rs 1,498.30 million shall be written off against the balance in the share premium account of the company.

With effect from the appointed date, all properties, estates and interest of the company in spinning business shall be transferred to and vested in IRTL on a going-concern basis subject to all existing charges, mortgages etc, and all properties of spinning business shall become the property of the transferee company IRTL.

All the permanent employees of IRSIL shall be engaged by IRTL as on the appointed date without interruption of services and shall be eligible for all retirement benefits, including provident fund and gratuity, to which they would have been eligible in IRSL.

All legal or other proceedings by or against IRSIL relating to the spinning business shall be enforceable by or against IRTL after the appointed date. All assets and liabilities as drawn up in respect of both IRSIL and IRTL shall be vested in the respective companies after the appointed date upon the scheme becoming effective.

Allocation of liabilities on account of debts shall be as per the valuation report. The above demerger shall be subject to the approval of the shareholders, and lenders and creditors of both the companies and shall be approved by the high courts of Madhya Pradesh and Delhi.

This restructuring exercise is expected to facilitate faster growth of both businesses, enhance shareholders value, reduce cost of capital and improve service to all stakeholders including lenders.