House of Pearl to provide Short Term loan to subsidiary company, Pearl Global Ltd

House of Pearl Fashions Ltd has announced that the Company came with its Initial Public Offer (IPO) on January 16, 2007. The purpose of IPO was to raise funds for the objects as specified in its Prospectus dated January 29, 2007. The funds raised by the Company through IPO are to be utilized over a period of three years as per schedule of utilization.

As per Interim use of proceeds Clause "The Company's management, in accordance with the policies established by the Board, will have flexibility in deploying the Net Proceeds. Pending utilization of the Net Proceeds for the purposes described above, the Company intends to temporarily invest the funds in high quality interest bearing liquid instruments including deposits with banks or temporarily deploy the funds in working capital loan accounts. Such investments would be in accordance with the investment policies or investment approvals approved by the Board from time to time."

In this backdrop, the Company is having surplus funds which will be utilized as per the objects of the issue. The Company proposes to advance a loan of Rs 27.5 crores at the prevailing rate of interest for a period of one year, out of these funds to its Subsidiary, M/s Pearl Global Ltd, to enable the subsidiary to repay the high yield rate of interest working capital loan availed of by the Subsidiary from Centurion Bank, Yes Bank and China Trust Bank. The repayment of ECB of China Trust Bank amount of Rs 7.5 Crores equivalent to USD 1.8 million is as per object of issue as stated in the Prospectus of the Company, and the Balance repayment of working capital loans of Centurion Bank and Yes Bank amounting to Rs 20 Crores only is interim use of funds. The said financial assistance in the form of interest bearing loan is subject, however, to the requisite recommendation / approval of the Audit Committee (monitoring the utilization of proceeds) and the Board of Directors / Shareholders in accordance with the provisions of the Companies Act, 1956 read with the SEBI (DIP) Guidelines, 2000 and / or the Listing Agreement.

The Company has further informed that interest being charged by the Company on the loan to Pearl Global Ltd., is what it is earning on the IPO funds invested in various instruments pending deployment on projects as per prospectus. Pearl Global Ltd will be repaying working capital loans which have higher cost, thereby resulting in net saving to the House of Pearl group.

Source : Equity Bulls

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