While he may have earned a reprieve last month, this could be the last stand of M.R. 'Manu' Chhabria.

By Rakhi Mazumdar

The brew is, suddenly, tasting better-not bitter-for the Rs 683-crore Shaw Wallace & Co., the Indian flagship of the Rs 5,250-crore Jumbo Enterprises Group. Just a few months ago, the Manohar Rajaram Chhabria-managed company, which has been buffeted by allegations of financial irregularities and mismanagement for two years now, was ready to be taken on a stretcher to the Board for Industrial & Financial Reconstruction (BIFR). However, on April 7, 1998, the spirited Chhabria-who continues to avoid visiting the country-managed to earn a reprieve for the liquor giant.

That Tuesday, Shaw Wallace's top managers held a crucial meeting with 133 (of 191) of its creditors in the Inter-Corporate Deposits (ICD) market, to whom the company owed Rs 263.79 crore as of March 31, 1998. And they managed to get 5 additional creditors-including 3 companies of the Rs 2,202-crore Videocon Group, which were owed Rs 17 crore-to agree to a new repayment schedule. This vote of confidence meant that Shaw Wallace had the support of creditors who accounted for over three-fourths of its borrowings, a necessary condition to get the final approval for a staggered process of paybacks.

That envisages that all of Shaw Wallace's liabilities-assessed on the basis of outstandings of over Rs 10 lakh as on March 31, 1997-will be cleared by the last quarter of 1999. While 10 per cent of the principal was to be repaid within a month, the rest will be paid in quarterly instalments over the next 18 months. S.B. Palod, 52, a legal advisor to Videocon, explains his client's point of view: ''We decided to vote in favour of the repayment scheme because there was no other option except to wind up the company. But that would have put an end to any hopes of recovering the dues.''

There was more good news to come. A month later, on May 8, 1998, the Calcutta High Court vacated the 19-month stay on Shaw Wallace's proposal to sell its 55.39 per cent stake in the Rs 32.50-crore Calcutta Chemicals, and its 60 per cent stake in the Rs 43-crore Detergents India to the Rs 55.78-crore Henkel-SPIC. That will enable Chhabria to earn Rs 51.05 crore, with Shaw Wallace's stake in Calcutta Chemicals alone likely to fetch Rs 35 crore. Which would, obviously, help the cash-strapped company partially repay its creditors. As will Shaw Wallace's increased cash-flows: its net profits for the first half (ended December 31, 1997) of 1997-98 shot up by over 6 times to Rs 1.70 crore from Rs 0.27 crore in the first half of the previous year.

For all the good news, Chhabria cannot still afford to raise a toast to a new beginning at Shaw Wallace, whose problems may have diminished but have not disappeared. For one, Krishnadas Paul, 58, a Director of Calcutta Chemicals, who holds a 25.70 per cent stake in the company, is trying to spike Shaw Wallace's bid to sell its stake in the soap manufacturer. On June 13, 1998, Paul wrote to the Securities & Exchange Board of India (SEBI) alleging that the deal flouted Section 12 of the Takeover Code, which states that ''...no acquirer shall acquire control over the target company unless such person makes a public announcement'' to acquire another 20 per cent.

Since Henkel-spic has not made any such offer, Paul claims that sebi should reject the deal. Denies A. Satish Kumar, 44, Managing Director, Henkel-spic: ''We will make a public offer at an appropriate time. We cannot make any announcement now since we aren't yet ready to close the deal (with Shaw Wallace) yet.'' That, according to Kumar, will happen once the proposed agreement is cleared by both the Department of Company Affairs and the Calcutta High Court. In addition, Henkel-spic has already assured sebi ''that the laws of the country will not be violated.''

In another letter dated June 15, 1998, Paul alleged that the proposed deal would go against his, and other shareholders', interests. That is despite the fact that Henkel-SPIC will offer-as estimated by Paul-Rs 265 per share even though the Calcutta Chemicals scrip last traded at Rs 14 on August 25, 1997, on the Calcutta Stock Exchange. According to Paul, while Henkel-SPIC is, allegedly, paying Rs 35 crore to the Chhabrias, the valuation of the latter's 55.39 per cent stake has been deliberately understated at Rs 265 per share-which adds up to only Rs 11.74 crore.

And the remaining Rs 23.26 crore will be paid to Shaw Wallace for other considerations, which include giving up the right to distribute Calcutta Chemicals' soap brands, like Aramusk and Margo, and a non-competing agreement to disallow it, and its associate companies, from producing or marketing products in cosmetics, oral-care, hair-care, personal care, and disinfectants for a period of 5 years. This, according to Paul, will enable Henkel-SPIC ''to save a huge sum of money on the acquisition of another 20 per cent of the equity shares of Calcutta Chemicals...by paying a lesser price to the minority shareholders...'' Kumar, however, declined to comment on the issue, saying: ''The due diligence process is on, and S.B. Billimoria & Co. is valuing the shares.''

Clearly, it is now up to SEBI to decide whether the price offered by Henkel-SPIC to Calcutta Chemicals' other shareholders is fair or not. Explains Naresh Pachisia, 35, Managing Director, SKP Securities: ''The managers to the proposed offer have to file a copy of the price agreement between the acquirer (Henkel-SPIC) and the seller (Shaw Wallace) with SEBI. Based on this information, SEBI will make its observations.'' Meanwhile, Paul also tried-unsuccessfully-to stall Shaw Wallace's Extraordinary General Meeting (EGM) on June 26, 1998, to seek the shareholders' permission to allow ''control and management'' to be transferred to Henkel-SPIC.

Even if SEBI clears the deal, Chhabria has other problems to contend with. For instance, he can adhere to the repayment schedule accepted by his creditors only if Shaw Wallace is able to sell off its profitable agri-chemicals division, which clocked a turnover of Rs 90 crore in 1997-98, and its 51 per cent stake in the Rs 70-crore trading company, Shaw Wallace & Hedges. Says a spokesperson for Shaw Wallace: ''As soon as we are through with the sale of Calcutta Chemicals, we'll invite bids for them.''

Sure, Chhabria also has plans to raise money through a Rs 58-crore rights issue and External Commercial Borrowings of $10 million, which are yet to be cleared by the Union Finance Ministry. Moreover, the rights issue-which was first mooted in June, 1997-may not succeed due to the bearish trends in the stockmarkets. If the company is unable to raise money through these routes, it will have to finance the repayments out of its cash-flows.

That could lead to a cash-crunch since Shaw Wallace's working capital limits have been frozen at Rs 42 crore by its consortium of 10 banks since 1993 despite a 46.53 per cent increase in its turnover: from Rs 464.74 crore in 1992-93 to Rs 683 crore in 1996-97. Explains a senior manager in the Allahabad Bank, which leads the consortium: ''The company is allegedly involved in financial irregularities. Hence, all the 10 banks will arrive at a decision only after taking these aspects into consideration.''

It is clear that Chhabria's travails are far from over, and the recent reprieves may only be temporary. Indeed, the situation could get worse if the court cases relating to financial irregularities go against Chhabria. If that happens, Shaw Wallace's jumbo plan to repay its creditors over the next 18 months could collapse. However, the fact remains that 'Manu' Chhabria is, finally, making his last stand-and fighting back.

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