COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Plans galore, but Dunlop still has miles to go

A Pal in Calcutta

The Dunlop saga now looks set to continue for some more time. Only last week the West Bengal government had announced with great fanfare that it would take over the tyre major and reopen the Sahaganj factory. But within a day of receiving the Centre's in-principle permission to take over Dunlop, the state's Communist Party of India (Marxist)-led government has passed the buck back to Delhi. The state has informed the Bharatiya Janata Party-led coalition central government that the onus for arranging the funds for the takeover rests with the Centre.

"The Centre through financial institutions has to provide the funds for taking over the Sahaganj unit," said state Finance Minister Asim Dasgupta. This, despite his earlier promise that, if necessary, the state would organise the funds. Since Delhi had earlier already refused to take over the management of Dunlop, it is highly unlikely that it will release funds to let Dasgupta have his way. And with funds lacking, the only viable route now left is to transfer the promoters' shares in Dunlop to another promoter.

The decision to take over Dunlop emerged after of a 20-minute meeting last week between West Bengal Chief Minister Jyoti Basu and the leaders of the two prominent trade unions -- the Indian National Trade Unions Congress, affiliated to the Congress party, and the Centre for Indian Trade Unions, affiliated to the CPI-M. Efforts are on to rope in a new promoter to provide the technical expertise.

Sahaganj, a typically sleepy West Bengal town, is a two-hour drive from Calcutta. Most of its inhabitants are directly or indirectly dependent on the Dunlop plant in the town for their livelihood. Driving through its narrow congested lanes, one can sense the despondency in the air. More than 4,300 workers have been affected ever since work at the plant came to a standstill on Sunday, February 8, 1998. Along with the closure of Dunlop's plant in Ambattur, Tamil Nadu, the tally of Dunlop workers laid off goes up to 7,000. The closure came after workers at Sahaganj were not paid their salaries since September last.

The local people and union leaders have been crying themselves hoarse, asking for official intervention, perhaps prompting the latest move. However, many astute observers feel that the move is nothing but political posturing before the forthcoming panchayat (local council) elections. Others say it is a move to stem the growing popularity of the BJP-Trinamool Congress of Mamata Banerjee in the state.

Another worrying aspect is the legal angle: does the state government have the powers to take over Dunlop? Under the Industries Development and Regulation Act 1951, the state can take over a factory for a small consideration. This can be done by issuing an order under Section 18A of the IDR Act and is valid for five years. But it hinges on the Centre's go-ahead. Otherwise, the state government can do very little.

Given the equity break-up, taking over the company will not be easy. The Indian promoters and foreign collaborators hold 39.8 per cent of the company's equity while mutual funds and financial institutions hold only 34.3 per cent. The public holds the rest.

After the closure of the Sahaganj unit, Dunlop was provisionally referred to the Board for Industrial and Financial Reconstruction. The BIFR in turn asked the Industrial Development Bank of India to study Dunlop's accounts and submit a report within a month. Thus, Dunlop has not been been declared a sick company, nor has IDBI been appointed as the operating agency.

The Manu Chhabria-led management has announced plans to revive the company. The plans include sale of real estate in Bombay for Rs 1 billion, a rights issue of Rs 660 million, and seeking foreign loans of Rs 1 billion through external commercial borrowings. It has also chalked out a large-scale retrenchment plan to slice the company's workforce from 7,700 to 3,500. This alone will cost the company close to Rs 500 million. The company is also trying to negotiate a working capital loan of Rs 1.2 billion.

However, the revival package may not work out because Dunlop's credit limit has been frozen at Rs 330 million. In spite of repeated pleas and negotiations, banks have been reluctant to enhance the limit. Moreover, neither the government nor the unions and workers trust Dubai-based promoter Manu Chhabria to plough back the funds raised from disposing of the company's real estate. And, of course, trade unions have vehemently opposed the retrenchment plan.

Yet, with over 7,000 workers, Dunlop's labour costs are more than double the industry average of Rs 5.50 per kilogram. Energy costs are also high at Rs 5.70 per kilogram produced. The senior management at Dunlop has been changing with alarming alacrity and the company was without a managing director for six months. Recently, the company was able to show a profit of Rs 390 million only by extending the accounting period to 15 months.

Clearly, the motive behind Dunlop going to the BIFR at this stage is to seek the latter's permission to sell its huge real estates in Bombay, Calcutta, and in other cities, totally valued at between Rs 2 billion to Rs 4 billion. Dunlop's total assets are valued at over Rs 14 billion. The company's earlier plan to sell real estate worth Rs 1.7 billion to its 100 per cent subsidiary Dunlop Investments was not allowed.

Somnath Chatterjee, CPI-M member of Parliament and chairman of the West Bengal Industrial Development Corporation, is extremely critical of the Dunlop management's decision to close the unit. "The management came to see me and I told them that they were politically guided in announcing the closure or cessation of work just before the general elections (in February). The management did not speak to the unions, nor to the WBIDC. Then suddenly they came here one day and asked us to put pressure on the bank so they could get more funds.... and they never bothered to attend discussions in spite of repeated requests by the state."

At present, Dunlop's market share for passenger car tyres is 11 per cent, and 5 per cent for heavy commercial vehicle tyres. This is only a shadow of what was once the country's largest tyre manufacturer, and a time when Dunlop was synonymous with tyres in the country.

As things stand today, there a few possible scenarios for the final outcome of Dunlop. One, the BIFR, at the request of the state government, finds a buyer for the company. The second is that the government of India attaches the property of Chhabria in India. A third possibility is that the Dubai-based businessman, who heads the Jumbo Group, pumps in money to revive Dunlop. But given Chhabria's past performance, the last option is perhaps the least likely.

Meanwhile, the Department of Company Affairs is considering appointing two of its nominees on the board of directors on Dunlop, at the request of Jyoti Basu.