Default fears rise as Rs800 crore Amtek bonds set to mature

The debt-laden auto parts maker had sold the bonds at a coupon rate of 10.25%, its largest such sale in the local market

Mumbai: Amtek Auto Ltd will need to pay 800 crore to investors in the next two weeks, when bonds sold by the company in 2010 mature, and concern is mounting among bankers and bondholders that the debt-laden auto parts maker, which reported a surprise June quarter loss, may default.

The Delhi-based company had sold the bonds at a coupon rate of 10.25%, its largest such sale in the local market. These bonds are coming up for redemption on 20 September, according to data from Bloomberg. Axis Bank Ltd managed the bond sale.

Apart from this lump-sum repayment, an additional 40 crore of debt is due for payment on 16 October and 50 crore on 4 November, according to a draft shelf disclosure document prepared by the company dated 7 April. Mint has reviewed a copy of the document. Amtek Auto’s managing director Gautam Malhotra didn’t respond to several calls seeking comment on Thursday and Friday. An email sent to the company also remained unanswered.

The bond redemption could add to the nervousness around the company, which has seen its shares plummet by 78% since 17 August, when the shares were excluded from trading in the derivatives segment by stock exchanges. The stock touched an intra-day low of 25.60 on Friday, its lowest level since 24 January 2001, before recovering to close at 32.75.

Should Amtek default on payments, a number of local and foreign financial institutions may have to take a hit. Life Insurance Corp. of India (LIC) was the top holder of bonds sold by the company as on 30 September 2014, with an exposure of 530 crore, according to the document cited above. Axis Bank was the other major holder with 517.4 crore.

LIC did not respond to an email seeking comment. Axis Bank declined to comment on individual client transactions as a matter of policy.

To be sure, some of these bonds may have changed hands since then. JP Morgan Asset Management Co. bought 193 crore of the bonds in February, according to a 31 August Mint report.

“There is no sign of a solution so it looks like we may see a default unless a white knight enters the scene and bails out the company," said a banker closely involved with the local and international debt markets.

A second foreign banker said it will be difficult to refinance the amount coming up for redemption through the capital market in the current scenario.

“The company could still give a preference to the capital market instruments and choose not to pay off loans and rather pay back the bond amount. But yes, rolling over the bond issue is unlikely because no one in the market will buy that company’s paper now," the second foreign banker said.

On 7 August, CARE Ratings suspended its rating on the company citing a lack of information.

Amtek reported a loss of 157.6 crore in the June quarter. In the March quarter, the company had reported a profit of 127.82 crore, while net profit in the June 2014 quarter was 223.17 crore.

As of March, the company had a total debt of 7,844.12 crore. Amtek Auto’s interest coverage ratio, a measure of how easily firms can meet their interest costs, has slipped from 7.28 in March 2008, to as low as 0.09 times at the end of June.

Foram Parekh, an analyst with Khambatta Securities Ltd who tracks the company, said high debt, problems in its main market of Europe and ill-conceived acquisitions over the years are hurting the company.

“Our estimates are that their current debt is 10,000 crore which is much higher than their annual revenue. Problems in the euro zone have worsened, particularly after the Greek crisis, and now it is starting to reflect in its losses," Parekh said.

In a notice to the exchanges on 20 August, the company said that its operational performance declined due to the current market scenario. It added that the promoters have infused 75 crore into the company to mitigate a temporary cash flow mismatch and said the company is exploring various means to raise funds.

Since then, there have been no updates from the company even though the stock has continued to plunge.

“They have been very aggressive as far as acquisitions are concerned, and due to this the debt on their book is high," said Deven Choksey, group managing director, KR Choksey Investment Managers Pvt. Ltd.

“It is quite possible that they could not execute these acquisitions as desired, straining their finances," added Choksey.

Domestic lenders to the company have formed a joint lenders’ forum to monitor the account and will meet in the second week of September to take stock of the situation, Mint reported on 3 September.

A top official at a state-run bank, which still has some loan exposure to the company, agreed that Amtek’s ambitious acquisitions abroad cost the company dearly.

“Our exposure is in the single digits, so I am not worried. A lot of banks are involved with this company and we will see many of them burning their hands," he said.

Meanwhile, the standoff between the company’s Castex Technologies Ltd unit and its foreign bondholders continues. Investors who had bought foreign currency convertible bonds sold by Castex are alleging that the company’s stock was manipulated to force a conversion of bonds to equity. The bondholders have written to the Securities and Exchange Board of India and are considering approaching the court in UK on the issue.

Shares of Castex Technologies fell for the 39th consecutive session, hitting the lower circuit of 5% in each session, and closed at 49.40 on Friday. The stock has erased 35.8% so far this year.

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