London court decides in favour of Castex Technologies in FCCB conversion case
Castex Technologies said a London court has ruled in its favour in a case related to the mandatory conversion of foreign currency convertible bonds
Mumbai: Castex Technologies Ltd on Wednesday said a London court has ruled in its favour in a case related to the mandatory conversion of foreign currency convertible bonds (FCCBs).
In a stock exchange notice, Castex, a subsidiary of Amtek Auto Ltd, said Citicorp International Ltd, on behalf of other bondholders, had questioned the mandatory FCCB conversion triggered by a sudden and sharp spike in the Castex share price. Bond holders had alleged that the stock was manipulated to force conversion.
“Castex Technologies Ltd has informed BSE that Citicorp International Ltd, trustee to the 2.5% Foreign Currency Convertible Bonds issue of US $70 million due 2017 convertible into equity shares of the company, had filed a case against the company on the behalf of various bond holders in the commercial court of high court of London challenging the validity of Mandatory Conversion Notice issued by the Company on 31 July 2015. Today i.e. 24 February 2016, the court has concluded that the issuance of mandatory conversation notice was valid and decided the issue in favour of the company," the company said. A copy of the order is not available.
In April 2012, Castex Technologies issued $130 million in FCCBs, followed by $70 million in September 2012. On 31 July 2015, Castex Technologies informed stock exchanges that the company’s board had agreed to “mandatorily convert" $137.4 million of these outstanding bonds into equity shares. The conversion date was set for 10 September 2015.
The notice of conversion came after the stock price went above a threshold level laid down as part of the FCCB issue. While FCCB issues do not typically have a clause of mandatory conversion, this one had, Mint reported on 24 August 2015. According to the FCCB agreement, for the mandatory conversion of one tranche of bonds bearing a coupon of 6%, the stock of Castex Technologies must exceed ₹ 171.08 for 30 consecutive trading days. For the conversion of a second tranche of bonds bearing a coupon of 2.5%, the stock price had to exceed ₹ 153.36.
According to Bloomberg data, the stock breached the conversion limit of ₹ 171.08 and then continued to trade above that price until 31 July, when it hit a high of ₹ 361.85 per share. After that, the stock fell for 29 consecutive days, hitting the lower circuit of 5% each day.
These sharp moves in the stock led bond holders to question whether the stock price moves were genuine. The London court, however, appears to have ruled in favour of Castex Technologies.
At 10.10am, Castex Technologies Ltd was trading at ₹ 7.03 on BSE, up 9.2%, from its previous close, Amtek Auto Ltd rose 2.6% to ₹ 30.10. India’s benchmark Sensex Index rose 0.04% to 23,098.38 points.
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