296 Corporate Finance
Chapter 15
15. A Case Study: Bharti Dredging and Construction Limited
and Construction Limited
OBJECTIVES
Reinforce material covered under bank loans.
Demonstrate a generic situation in which a corporation seeks a bank loan.
Demonstrate the preparation of credit grading sheet in a real life setting.Bharati Dredging and Construction Limited (BDCL) enjoys working capital facilities from ICICI Bank
under sole banking. The company’s limits were reviewed by the executive committee on March 6, 2002,
and restrict the non-fund limits accordingly, from Rs 10 crore to Rs 7 crore, in view of the existing order book
position and marked for exit. The existing working capital sanctions available would be adequate for the com-
pany’s present level of operations. BDCL received a work order from Paradip Port Trust on April 6, 2002.
The work involves hydraulic dredging of oil jetty at Paradip Port. The value of work is Rs 13.85 crore to be
completed in four months time. That is, the work is to commence by April 20, 2002, and to be completed
latest by end of September 2002. In view of the large work the order to be undertaken in a period of four months,
the company requested ICICI Bank to provide an ad hoc limit. To undertake the work, BDCL has to procure
pipeline, HSD oil and import standby spares and a sudden surge in operational expenses, therefore the
company requested an ad hoc limit involving cash credit of Rs 1 crore and LC of Rs 2 crore. The proposed limit
was for a period of six months.
BDCL was founded as a wholly owned subsidiary company of M/s TEBMA Shipyards Limited (TSL)
in 1993. TSL, during the early-1990s, decided to branch off the business of carrying out dredging and civil
engineering works and make a separate corporate entity to deal with the same. Thus BDCL was born. It com-
menced full-fledged business in 1994–95 and that year it had a turnover of Rs 6.94 crore and a net profit of
Rs 1.57 crore (see Exhibit 15.1 for the company’s financial details). It carries out dredging activities besides
value added services like civil and structural engineering.
Since its inception, BDCL has been a wholly owned subsidiary and remained so till mid-1995. Fourteen
lac shares of Rs 10 each were issued on private placement at a premium of Rs 60 per share to subscribers like