The ITC Classic Account
In late mil novecentos e noventa e seis, almost half of the executives on board of the cigarettes to hotels major ITC Ltd. had been in prison on fees of FERA and bar violations. It absolutely was at this point the fact that downfall of ITC Traditional Finance (Classic), ITC's flagship financial services 49% subsidiary, commenced.
The scandals in ITC had a massive damaging impact on the ITC brand and company image. The impact got shown on Classic too and it was overwhelmed with desperate fixed deposit holders attempting to withdraw their funds. Funds worth above Rs 50 crore had been withdrawn within a few days after the crisis pennyless out. The continuing uncertainty on pay for flows in to the company as well as the eroded worth of it is portfolios started scaring off potential investors and international partners too. International Finance Corporation (IFC), which was to provide a credit of $ forty-five million to Classic, likewise held back the offer until вЂthings gone away. ' |Analysts were speedy to raise hands at Classic's negative funds flows, their huge advantage liability mismatch |[pic][pic] | |and the slower process of divestment of buy-ins held by simply Classic inside the ITC group companies. Such as the | | |proverbial вЂfinal nail inside the coffin, ' Classic declared a Rs 285 crore loss in June 97, which nearly | | |wiped away its whole net worth. |
In the meantime, troubles installed as redemptions kept raising - coming from Rs 750 crore in mid 1996, deposits came down to Rs 550 crore in-may 1997. By a top level of one million depositors, Traditional was playing just six lakh. ITC gave Vintage a Rs 75 crore credit line to maintain cash flow to fulfill the payoff pressure. There were even reviews that Classic had to take inter-corporate deposit to fund the outflow. The sustained recession in the capital markets during 1995-96 put into the company's problems and soon, key workers began giving the company
Already neck-deep in legal troubles, ITC realized that it would be best without Typical to add to its problems. ITC then initiated discussions with Daiwa Securities of Asia and a few Korean language, British and American expense banks for the possible tie-up.
A Business Today report said that ITC was eager not to permit Classic choose liquidation, as that would have reflected badly on the brand electric power. ITC declared that it was possibly willing to include more cash to keep Vintage afloat. The two GE Capital and the Hinduja Group evinced interest in Traditional. Since they placed down incredibly stiff conditions for the buy-out and valued Typical much below ITC's targets, talks would not proceed further.
Nothing appeared to be working out in favour of Classic because there were not any takers for a company with nonperforming resources of above Rs three hundred and fifty crore and an investment portfolio that was by any standards an extremely poorly accomplished one.
With this juncture, ICICI Ltd. moved in while the вЂknight in the glowing armor' to rescue Vintage, taking the corporate world plus the media abruptly. All those active in the issue stored asking themselves - What did ICICI discover in Traditional that numerous other companies cannot?
CLASSIC: THE ITC FOSTERED BABY
Named after ITC's superior cigarette brand вЂClassic, ' Classic was incorporated in 1986. Classic was obviously a non-banking finance company (NBFC) predominantly engaged in retain the services of purchase and leasing functions. Besides, the business undertook investment operations over a substantial level. The company performed very well in the initial years and produced a strong network to mobilize retail build up. Its fund-based activities such as corporate procurment, bill discounting and equities trading likewise grew greatly over the years. |At a exponentially boosted annual progress rate of 78% during 1991-96, Classic's annual proceeds increased from Rs |[pic][pic] | |17. a few crore to over Rs 310 crore and net profits from Rs 2 . three or more crore to...