With the word doing the rounds of PE funds and some major textile firms racing to buy up Mumbai-based ISO 9001:2000 certified textile manufacturing company Alok Industries, its shares shot up by almost 9 per cent within one day.
However, some in the industry have claimed that they are only interested in some of the company’s spinning assets.
“Bulge-bracket private equity funds TPG Capital Management and KKR & Co LP are competing with domestic textile companies Vardhman Group, Trident and a brand new special situations joint venture between Ajay Piramal Group and Brescon to take control of debt-ridden Alok Industries, one of India’s largest exporters of home textiles,” read media reports quoting unnamed sources.
But Vardhman Textiles is reported to have stated that it has shown interest only in buying some of Alok Industries’ spinning assets, but is not looking to buy its polyester business.
According to RBI rules, banks have the right to take over a company, which has failed to pay loans for a long time, and hand over its operations to any other company or a group the bank deems capable of getting a substantial turnover over a certain period of time.
A joint forum of 25 banks, led by SBI, that together has exposure of around Rs 13,000 crore in the company, decided in January to convert the loans extended to Alok Industries into a 65 per cent equity stake, by invoking the strategic debt restructuring (SDR) option. Banks decided conversion of debt into equity at their Joint Lenders Forum meeting held on November 23 and December 12 (2015).
According to a company statement back on March 1: “At the JLF meeting on January 16, it was decided that JLF would be acquiring up to 65 per cent stake in the company by converting debt amounting to Rs 2,557.87 crore into 255.78 crore equity shares of Rs 10 each.”
SBI will get the maximum portion of preferential equity capital (13.04 per cent out of 65 per cent) after conversion of debt into equity, followed by Axis Bank, who will stand to gain 5 per cent, and Central Bank of India, who will get 3.42 per cent.
In total, 32 banks will get preferential equity capital of the company. Alok had called an extraordinary general meeting on March 14, to consider conversion of debt into equity shares, as well as alteration in capital clause of articles of association and increase in authorised capital of the company.
Due to lack of sufficient working capital and its resultant impact on operations, the company had not been able to perform at optimal levels, leading to decline in operating profits and liquidity in company and consequently its account had slipped into SMA2 category (where principal or interest payment overdue between 61-90 days), with most banks. As per the latest quarterly earnings (December 2015), the company’s loss increased significantly to Rs 1,638.3 crore from Rs 227.35 crore in the corresponding quarter last year. Its revenue in the same period also increased marginally to Rs 3,294.6 crore from Rs 3,209.8 crore. For nine months ended December 2015, its loss was in the tune of Rs 1,870.8 crore.
Promoters currently hold 37.17 per cent stake in the company that has presence in cotton and polyester segments.
At 10.44 am, the scrip of Alok Industries was quoting at Rs 4.22, up Rs 0.17, or 4.20 per cent on the Bombay Stock Exchange.