Announcement of IFC Investment in Lakshmi Machine Works Limited, India on June 30, 1964

IFC Press Release No. ~/11 Sub,ject: IFC investment in Lakshmi For release AM newspapers Machine Works Limited, India Tuesday, June 30, 1964 The International Finance Corporation, an affiliate of the World Bank, has a.greed to join with Indian and Swiss interests in providing loan and share capital to Lakshmi Machine Works Limited, a new Indian company which will build and operate a cotton-textile machinery plant at Coimbatore in South India, at an estimated cost of nearly Rs. 60 million (the equivalent of $12.5 million). IFC's loan and share investment commitment in the new company amounts to $1,380,000. Continental International Finance Corporation, a subsidiary of Continental Illinois National • Bank and Trust Company of Chicago, is participating in Ili'C's loan and share invest- ment. Lakshmi Machine Works Limited is being established with an issuea. capital of Rs. 25 million, all in equity shares. Its share capital will include subscriptions of Rs. 8.75 million by a sponsoring group of Indian industrialists, Rs. 3 million by Rieter Machine Works Limited of Switzerland, Rs. 2 million ( the equivalent of $420,000) by IFC and Rs. 1.25 million by another Indian company, Voltas Limited. The remainder of the stock issue, amounting to Rs. 10 million, was offered to the public in February and fully subscribed by the public and the underwriters. The group of underwriters included the privately owned Industrial Credit and Invest- ment Corporation of India, a number of local banks and two government-sponsored institutions, The Life Insurance Corporation of India and the Industrial Finance Corporation of India. • Loan capital is being ma.de available to the new company by TFC and three pri- vately owned financia1 institutions in India. IFC is lending $96o,ooo, repayable I - tr 1 ' t $1! ·t '"1 t •' f t  . • - 2 - in 16 semi-annual installments, beginning in 1967; the Bank o:r Baroda. and the Indian Ba.nk are each lending Rs. 3.25 million; and the Industrial Credit and Investment Corporation of India is providing the equivalent of $840,000 in foreign exchange and an additional loan of Rs. 1.5 million. Short-term bor- rowings, advances from customers and the company's cash generation, amounting to a total of Rs. 18.3 million, will provide the remainder of the financing re- quired for the project. The Indian sponsors are a. group of prominent industrialists, headed by Mr. G. K. Devarajalu, which already has extensive industrial interests in Southern India. In addition to its equity participation, the group will bring to the new enterprise an intimate knowledge of the local cotton-textile industry. The Swiss sponsor and technical collaborator in the project, Rieter Machine Works Limited, is a leading manufacturer of high quality cotton-textile machinery • for the international market and is an important overseas supplier of machinery to the cotton-textile industry in India. As well as participating in the equity of the new company, Rieter w5ll provide technical assistance for the planning and construction of the plant, draw up the designs for the machinery to be produced, i'nrnish technical advice on the methods of' manufacture and, in the initial yea.rs of the plant's operation, supply key technical personnel for the plant, as well as training facilities for Indian staff. The new plant at Coimbatore will eventually produce the entire range of cotton-textile machinery now manufactured by Rieter in Switzerland. Production is planned in two phases. The first phase, expected to be in ope~a.tion in 1965 and in full production by 1967, will include the manufacture of high speed draw • frames, speed frames and ring spinning frames. In the second phase, for which  . • - 3 - financing will be arranged at a later date, production will be extended to cover the manufacture of blow room lines and cc·:.~1Jers with their associated sliver and ribbon lap machines. It will be t.r.1e only plant in India to manufacture a complete line of cotton-spinning equipment. The Indian cotton-textile industry has had a record of continuous expansion over the past 15 years, and has made an important contribution to India's foreign. exchange earnings. Although it is one of the largest in the world, its develop- ment has been critically hampered by the lack of suitable local equipment and by the limited foreign exchange resources available to pay for imported machinery. The need to replace obsolescent equipment, so as to enable the industry to com- pete more effectively in world markets, has been recognized by the Government of India, and a program for the modernization of the industry is included in its • current five-year development plan • The completion of the Coimbatore project will provide India with an important economic asset. By ma.king modern equipment available in the domestic market, the new plant will enable the cotton-textile industry to expand more freely, will aid the re-equipment of the industry and will help to establish it on a more competi- tive basis. At the same time, by supplying the domestic market with equipment of kinds that up to now have been largely imported, the new plant will accomplish a substantial saving of foreign exchange • • t t)