Bondholders drag Tayal group to court for ₹500 cr FCCB default4 min read . Updated: 15 Jul 2012, 10:41 PM IST
Bondholders drag Tayal group to court for ₹500 cr FCCB default
Mumbai: Investors in KSL and Industries Ltd have moved the Bombay high court with a petition to liquidate the company and recover their dues after the Tayal group company failed to meet a 19 May deadline to redeem $90 million (about ₹ 496 crore at current exchange rate) worth foreign currency convertible bonds (FCCBs), including interest. The hearing on the case is likely to begin early this week.
The winding-up petition was filed by Bank of New York Mellon Corp., the trustee of bondholders, on 3 July. Such a petition is presented to the court when one seeks an order that a company be put into compulsory liquidation to repay investors.
P.K. Tayal, founder promoter of the group, declined to comment, saying the matter is in the court. The group is currently in the process of preparing a reply to the winding up petition at the court, Tayal said.
QVT is the majority investor in the $80 million FCCBs issued by the Tayal group’s flagship company in May 2007. Including the redemption premium, the total outstanding amount is $90 million.
FCCBs are bonds that are converted into equity if they match a certain price point. If they don’t, companies have to pay bondholders an agreed amount.
Tayal, promoter of the erstwhile Bank of Rajasthan Ltd, is struggling to convince a group of 15 banks to restructure ₹ 2,800 crore of loans given to the entire group. If the company fails to convince the lenders, by 31 July the loans will turn bad.
KSL has a total debt of about ₹ 700 crore from banks. Tayal said this is being restructured by banks.
On 26 May, KSL had informed BSE that the firm is planning to restructure its FCCB debt and approach the Reserve Bank of India (RBI) to seek permission for the process without informing the bondholders and that irked the investors, one person familiar with the development said. He does not want to be named, considering the sensitivity of the issue.
However, Tayal denied this. According to him, the company has filed an application with RBI through a bank for restructuring and it did inform the bond trustees and stock exchanges about this restructuring. “As soon as the company gets approval, it will approach bondholders for restructuring," he said.
The Tayals are promoters of eight firms—Jaybharat Textiles and Real Estate Ltd, Eskay K‘n’IT (India) Ltd, KSL and Industries Ltd, Krishna Lifestyle Technologies Ltd, Asahi Fibres Ltd, Krishna Knitwear Technology Ltd, Rajasthan Bank Financial Services Ltd and Single Point Security Solutions Pvt. Ltd.
KSL losses widened to ₹ 27.66 crore for the quarter ended March from ₹ 11.38 crore in year-ago period. Since 1 April, KSL stock has lost little more than one-third of its value while Sensex, BSE’s bellwether equity index, lost 1.09%.
Bulk of the revenue for the Tayal group comes from textile and real estate businesses. The adverse market scenario in the textile industry and the group’s involvement in the alleged irregularities in the Bank of Rajasthan—which led to a Reserve bank-forced merger of the bank with ICICI Bank Ltd in 2010—have queered the pitch for the group.
Controversies surrounding the running of the bank came to light in February 2010, when RBI imposed a ₹ 25 lakh penalty on the lender. The central bank cited irregularities in the running of the bank, including acquisition of immovable properties, deletion of records in the bank’s information systems and conduct of some accounts, among others.
Shortly after that, stock-market regulator, Securities and Exchange Board of India (Sebi) initiated a probe into the chain of transactions used by the promoters to hike their share holding in the bank. Following this in March 2010, Sebi banned 100 entities, including those related to the Tayals, from transacting in the indian share market
In March, Sebi lifted the ban enabling Tayals to transact in these shares. Following this, Tayals either sold or pledged a majority of their ICICI Bank shares to bail out debt-ridden group companies.
This is not the first time FCCB holders are dragging companies to court. In 2010, QVT had taken Wockhardt to court for FCCB default. Later, it agreed to restructure bonds in an out-of-court settlement but two other bondholders were not ready for settlement and approached the court again. The Bombay High Court has directed Wockhardt to clear all dues by August.
In another instance, early this year bondholders filed a winding up petition against Zenith Infotech Ltd for failure to repay about ₹ 450 crore.
An estimated $2.97 billion worth of FCCBs, issued by 33 Indian companies, are due for redemption (in the July-December period), according to data from KNG Securities Llp.
Instances of some Indian companies defaulting on FCCB redemption are unlikely to have any systemic implication, Naresh Takkar, managing director and chief executive officer of rating agency Icra Ltd, said. “In any system ,there are good set of debtors and bad ones. Obviously, investors, who did not look at the credit- worthiness of the company, may suffer," Takkar said.