INDIA: Financial institutions okay Hindustan Motor's debt restructuring
In a move to provide vital lifeblood for the company, Indian financial institutions have agreed to restructure troubled car maker Hindustan Motors' debt.
The company makes the ancient 1950s Morris Oxford-based Ambassador saloon and also assembles a Mitsubishi Lancer sedan model launched in 1998. It also builds engines and transmissions, some for other Indian car makers.
Its proposal for restructuring of its term loan/working capital liability under India's Corporate Debt Restructuring (CDR) mechanism has been approved by the government while financial Institutions led by ICICI Bank have also given the go-ahead.
The Corporate Debt Restructuring cell is a government organisation which looks at potentially sick, debt laden and loss making companies and advises them on restructuring their debt.
The CDR cell's proposal is to reduce the interest on Hindustan's loan liability to 10.25% annually - the interest rates on existing loans are around 14-15% per year. The reduction is expected to help the company save INR120 million a year on interest alone.
The proposal also includes conversion of a part of the term loan liability into identified financial instruments, which are optionally convertible at the request of the holders.
About INR 180 million of debt is being recast into preference shares. This is a fraction of the current total debt of INR3 billion.
The repayment schedule of the company's term loans has also been extended, with a moratorium on any kind of payment till 2007. This is expected to help the company's liquidity and will allow it to redeploy capital for growth purposes.
Hindustan Motors reported a loss of INR809.5 million in the last fiscal year. While revenue from the automobile division was down 22.94% to INR 6.34 billion in 2003-04, income from automotive transmissions grew by 37.18% to INR952.2 million. The company has been losing market share because its Ambassador and Lancer models are outdated.
Deepesh Rathore / Tilak Swarup