Amtek Auto Ltd, the auto parts maker that defaulted on bond payments last year, will sell a “significant” stake to financial investors to infuse capital into the business and pare debt, said a senior company official.
Amtek will also reorganize its business and offer board seats to the investors, said vice-chairman and managing director John Flintham, suggesting that promoters will sell a sizeable chunk of their holding in the company
“It (selling stake to investors) is a substantial move by the promoters and they believe this will help run the business well. This is a big step by the group,” Flintham said in a phone interview on Wednesday. He declined to share specifics on the deal.
The investors will be major shareholders in the company and will play an active role in the management, said Flintham.
“They are invested in various auto component and automobile firms globally and in India,” he said. Flintham declined to say how much stake would be sold but added that it would be “substantial”.
At the end of 31 March, the promoter and promoter group held 49.99% in Amtek Ltd.
A manufacturer of forging parts, Amtek counts most of India’s top auto makers, including Maruti Suzuki India Ltd, among its clients. The company, however, has been struggling operationally and financially.
Going by March quarter earnings, the company’s income from operations declined 31.7% to Rs.651 crore from Rs.954 crore in the year-ago quarter. The company reported a net loss ofRs.528.69 crore for the quarter as finance costs increased. It also took a one-time charge of Rs.439 crore without explaining what that was for. As of 31 March, Amtek had a debt ofRs.14,800 crore.
The company has been trying to improve its position since last September when it defaulted on an Rs.800 crore bond payment. The attempts so far have not been successful.
Along with selling stakes to financial investors, the company continues to pursue a sale of its German unit and may also sell some of their assets in India.
With these three planned initiatives, the company is hoping to cut debt by two-thirds over the next three to four months, said Flintham.
The deal to bring in financial investors may be concluded in the next three to four months, said Flintham.
A person familiar with the company’s plans said the asset monetization plan will help raise about Rs.6,000-8,000 crore.
“The company wants the debt to be in the region of aboutRs.5,000-6,000 crore from the Rs.14,800 crore now. Investment by financial investors is likely to be around Rs.4,000 crore,” the person said, declining to be identified.
Flintham said the company has shortlisted bidders for its German Neumayer Tekfor unit and hopes to close the deal in six weeks.
“Together with Morgan Stanley, we have been doing the due diligence,” he said. In September 2015, Amtek had said that it plans to sell a minority stake in Amtek Global Technologies Pte. Ltd, the holding company for its international businesses.
That deal has not materialized so far.
The sale of non-core assets in India, which is a part of the debt reduction plan, is likely to take longer than the company had anticipated and should take another four to six months, said Flintham.
Meanwhile, as part of the company’s agreement with its lenders, the promoters will infuse more equity. Promoters put in Rs.200 crore into the company last year and are likely to put in another Rs.200 crore over the next three years, Flintham said.
“We met with the joint lending committee and we are looking to realign the debt,” he said, adding that the firm has a moratorium on principal repayment for a two-year period.
“All the way through this, you continue to pay interest. The moratorium is on the principle amount only. The debt reduction plan is separate from this,” he said.
Lenders to Amtek Auto had convened a joint lenders’ forum in September last year after the company had failed to pay its bondholders.
As part of the discussions, the lenders asked the firm to bring down debt through the sale of assets and improve core operations.
Some analysts are sceptical about how quickly the company will be able to get back on track.
“Management is once again making a commitment to bring a financial investor on board. However, looking at the deterioration in financials of the company, each passing day is putting pressure on the management as well as the potential investor. One needs to understand under what circumstances and conditions, the deal, if any, would materialize. In today’s world, there are no white knights,” Arun Kejriwal, founder at Kejriwal Research and Investment Services Pvt. Ltd.
Shares of Amtek Auto gained 7.59% to Rs.34.75 on the BSE, while the benchmark Sensex gained 0.17% to 26,713.93 points on Wednesday.
Since the beginning of the year, Amtek Auto has shed 29.7%, underperforming the Sensex’s 2.28% gain.