Mumbai: Is the Rs 670-crore simultaneous, but unlinked, rights issue of Telco in trouble? Reports suggest that two key financial institutions, LIC and GIC, which are Telco shareholders, have declined to subscribe to their share of rights, putting the prospects of Telco in jeopardy.

The issue, which opened for subscription on 29 September, is offering 6,39,64,086 secured convertible debentures of Rs 65 each in the ratio of 1:4, aggregating Rs 415.77 crore. It is simultaneously offering 2,55,85,635 secured redeemable non-convertible debentures of Rs 100 each in the ratio of 1:10, aggregating Rs 255.86 crore.

LIC and GIC hold 9.32 per cent and 1.50 per cent stake respectively in Telco. UTI and some banks, other major institutional shareholders, hold 4.43 per cent and 5.89 per cent stake respectively in Telco. The largest chunk of 30.25 per cent is held by the public, followed by the Tata Group, which holds 26 per cent stake in Telco. Daimler Chrysler and NRIs/OCBs/FIIs hold 10 per cent and 10.61 per cent respectively and domestic mutual funds about 2 per cent.

There are talks that UTI has also decided not to subscribe to the issue. The reasons cited for this are:

1. Telcos indifferent performance. The companys bottomline has failed to improve. While the Indica segment is showing promise of doing better, the commercial vehicle division continues to fare poorly.
2. The already-stressed financial conditions of the institutions.
3. Financial institutions have become cautious about their investments after various committees have found faults with the investment decisions of UTI.
4. Tight financial position of institutional investors. In the past whenever such situations have cropped up, the promoters have ended up subscribing to the issue instruments to help the issue go through. In this case, it is not clear whether the Tatas will indeed subscribe to the non-subscribed part.