COCHIN International Airport Ltd (CIAL), the promoter and operator of the Cochin international airport in the country, located near Nedumbassery, is to allot shares worth ₹35 crore to its 10,000 shareholders as rights issue.

“A sub-committee constituted by the company’s board of directors during its meeting held here on September 10, 2004 would be submitting its recommendations on these lines to the board soon”, C.V. Jacob, Chairman of the Sub Committee, told The Hindu Business Line. The rights issue would be available soon to its shareholders at 3:1, he said.

The shares aggregating ₹52 crore have become available for allotment following the board’s decision last week. The company had been keeping the shares for long to be converted in to equity of the Housing and Urban Development Corporation (HUDCO), and repay ₹52 crore to the corporation, he said. Under a one-time settlement, CIAL had repaid ₹120 crore to HUDCO out of the total outstanding dues amounting to ₹172 crore and set aside ₹52 crore for converting in to its equity. But, HUDCO does not seem to be interested in the offer.

The company’s decision to enhance its capital base to ₹200 crore had been pending for about two years for want of a positive response from the HUDCO, he said.

After the completion of the rights issue, the paid-up capital of the company would go up to ₹183 crore against the authorized capital of ₹200 crore, he said. Meanwhile, the company is in the process of raising ₹52 crore as loan at 6 per cent interest from a bank for settling the outstanding dues of the Hudco, Mr Jacob said.

CIAL had been in the red ever since it was commissioned in June 1999. The company had for the first time posted a net profit of ₹12.54 crore in 2002-03 and that had gone up to ₹22.11 crore last fiscal.

The major stake holders in the company is the Government of Kerala and the state public sector undertakings with 26 per cent and the rest is held by State Bank of Travancore, Federal Bank, BPCL, Air India, NRIs and the public.

Questions

(a) Assuming the company clearing the HUDCO loan using a 6% Bank loan for 90 days from a bank and finally returning the bank loan also using a rights issue to be. Please list out the possible journal entries the company may have had to note?

(b) You are required to analyze the impact of the changes on the company’s financial statements and comment on the same?