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SPIC profit should have been lower by Rs 57 cr: Auditors

M. Ramesh

CHENNAI, July 24

AUDITORS A F Ferguson & Co have qualified the final statements of Southern Petrochemical Industries Corporation (SPIC) pointing out a violation of an accounting standard relating to borrowing costs.

If SPIC had not capitalised the borrowing costs to the extent of Rs 57.26 crore, the company's profit before tax would have been lower by that amount.

Last year, SPIC's profit before tax amounted to Rs 15.87 crore. This means, if the company had conformed to the mandatory accounting standard (AS 16), the company would have reported a net loss.

The company has been following a policy of capitalising borrowing costs on advances given to ``a company promoted by it, which is to be adjusted eventually against equity to be issued by that company''. This, the auditors' report says, is against AS 16, which has been ``made mandatory'' with effect from April 1, 2000.

``Had the accounting standard been followed and such interest not been capitalised, but (instead) charged to the profit and loss account, the interest and financial charges for the year would have been higher, and (consequently) profit for the year befor e tax, loans and advances and reserves and surplus, would have been lower to that extent,'' the auditors' report says.

Last year, SPIC's interest charges increased to Rs 214.47 crore, from Rs 180.68 crore in the previous year. In fact, such a sharp rise in the interest charges was the primary reason for the company's net profit declining to Rs 15.87 crore, from Rs 28.37 crore in 1999-00.

SPIC's annual report, released today, says that the cost of SPIC's urea project at Dubai (implemented through a joint venture company), has further increased to $ 180 million.

The cost of the project was originally estimated at $ 160 million. In March 2000, shareholders of SPIC approved an additional investment of $ 25.16 million in the subsidiary, SPIC Fertilisers and Chemicals Ltd, because the project cost had increased to $ 170 million.

``The same is now estimated at $ 180 million, consequently, the company's contribution towards the equity funding would go up from the earlier estimates of $ 57.80 million to $ 61.20 million, i.e., an additional investment of $ 3.40 million, without any change in the shareholding pattern,'' the annual report says. SPIC has a 85 per cent stake in the company, the other 15 per cent is held by the Dubai-based Emirates Trading Agency.

SPIC will place a resolution before the shareholders at the company's annual general meeting, to be held on August 23, for increasing the investment in SPIC Fertilisers and Chemicals by Rs 16.15 crore.

Alongwith this investment, the company will also seek shareholders permission for investing Rs 8.23 crore more in Gulf SPIC Bahrain EC, Bahrain. This is a new company set up for making investments in the Kuwait-based subsidiary Gulf SPIC Contracting Comp any W.L.L.

Shareholders' permission is also being sought for investing Rs 10 crore in `other bodies corporate'.