The share capital is being written down from Rs 700 crore to Rs 50 crore to wipe out losses suffered by earlier owner Kesoram Industries
It's been a hard bargain for JK Tyre, which had earlier acquired BK Birla Group-owned Kesoram Industries' tyre plant at Haridwar.
Within six months of acquiring the truck and bus tyre plant from Kesoram, JK Tyre is writing off significant portion of its investment in the project.
The share capital of the subsidiary, Cavendish Industries, that houses the plant is being written down from a little over Rs 700 crore to just over Rs 50 crore, according to filing done by the company with authorities.
The issued and paid up number of shares would now get reduced from 70,00,50,000 shares of face value Rs 10 each to 5,00,03,571 of Rs 10 each.
A year back diversified entity Kesoram transfered its tyre manufacturing unit at Laksar to subsidiary Cavendish Ind on a slump sale basis for a consideration of Rs 2,195 crore and recorded an exceptional income of Rs 409.20 crore.
Subsequently in September, it entered into a pact with JK Tyre & Industries and JK Asia Pacific Pte to sell its investment in the subsidiary for Rs 2,200 crore.
Writing down its investment within six months of the deal indicates efforts of JK Tyre to clean up losses suffered by Kesoram because of inordinate delay in executing the project.
Companies usually write off share capital to write off losses suffered in businesses, accountants said.
Kesoram's Board in FY10 had approved expansion of capacity to produce truck and bus radial tyres by 85 tonne day at Haridwar involving capital outlay of Rs 350 crore, which was supposed to get executed by March 2011.
The deadline for completion of the project was pushed back every year, initially to second quarter of FY12 and then to beyond FY15, thereby incurring huge cost overrun and debt burden, forcing the company to go for his disinvestment.
JK Tyre is now expected to revive the project using its expertise gained in turning around its earlier acquisition of a tyre facility at Tornel in Mexico.
"The transaction is a reflection of the inherent strength of the company in undertaking acquisitions with turnaround potential and successfully delivering results to all the stakeholders in the business," JK Tyre had said during signing of the deal.
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