Financial Daily from THE HINDU group of publications
Thursday, Sep 16, 2004
State Govt clears suggestion to restructure SILK
Thiruvananthapuram , Sept. 15
THE State Government has approved the recommendations of the Enterprises Reforms Committee (ERC) for restructuring the public sector Steel Industrials Kerala Ltd (SILK).
A Government order says that the specific proposals for implementation of the restructuring shall be formulated by the Restructuring and Internal Audit Board (RIAB).
ERC, in its study, has found that SILK, in its present form, is unviable and unsustainable in the public sector. It has recommended that the General Engineering Works (GEW) at Thuravoor be closed down and all the employees brought under the Social Security Net Programme (SSNP) of the Government. The assets of the unit may then be valued and sold.
In the case of the Steel Fabrication Unit at Cherthala, it has been suggested that it may be offered for private participation with the Chinese collaborator, with whom a memorandum of understanding and agreement of cooperation have been signed.
However, the articles of association and memorandum of association to be drafted for the joint venture company should be scrutinised at the Government level for Cabinet decision during the transaction phase. The views of ERC, the State Planning Board and the Finance Department may also be obtained at that stage.
For facilitating the joint venture project, the charge over the assets of the Steel Fabrication Unit are to be released from Vijaya Bank and for this, a one-time settlement may be concluded with the bank by obtaining waiver of interest. The payment against OTS can be made at the time of the formation of the proposed joint venture company and this may be funded by the proceeds from the sale of GEW at Thurvaoor.
However, consequent to the OTS, the Government should not issue fresh guarantees for increasing bank liability on the working capital front.
ERC has also recommended that the ship breaking unit at Beypore and ship building unit at Azhikkal be de-linked from SILK and converted into private companies owned by the remaining employees after implementing a voluntary retirement scheme. The facilities available in these divisions, to the extent required, can be leased out to the newly formed companies on suitable terms.
Besides, the excess land under the possession of SILK at Azhikkal may be transferred to the Ports Department for facilitating the expansion of the port there or for setting up a marine technology institute against a consideration arrived at thorough valuations.
The foundry unit at Ottapalam can also be de-linked from SILK and converted into a company owned by the employees.
If the proposals are not acceptable to the employees of the three divisions, these may be privatised and if this also does not materialise, they should be closed down after bringing all the employees under the Social Security Net Programme.
The project engineering and commercial divisions can be merged and function as the restructured SILK. Here, the right sizing of manpower should be done to ensure that the restructured company functions as the nucleus for the rejuvenation of the steel industrial sector in the State.
In the case of the subsidiaries of SILK, namely, Autokast Ltd and Steel and Industrial Forgings Ltd, ERC has recommended that they may be de-linked from the company. For this purpose, SILK should divest its entire shareholding to private investors and raise resources for strengthening its own financial position.
According to the GO, divestment or sale of assets, proposals shall be formulated by RIAB after valuation of assets, due diligence and following a transparent procedure for invitation of bids. The proposals, thus formulated, should be placed before the Council of Ministers with the recommendations of ERC and the Planning Board for taking a final decision.
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