Bondholders cry foul on Castex Technologies’ FCCB move

Pranav Nambiar

1 August 2015

Financial Express

Castex Technologies, a subsidiary of auto component major Amtek Auto, on Friday passed a resolution calling for the conversion of its $200 million foreign currency convertible bonds (FCCBs) into equity, despite bondholders writing to the company and the Securities and Exchange Board of India warning that the move is possibly the result of a manipulation of stock prices, report Pranav Nambiar, Pallavi Ail and Ankit Doshi in Mumbai. The bondholders have also requested Sebi and the exchanges for an investigation into the matter.Three sources close to the development told FE that on July 10, 2015, FCCB holders, including a set of FIIs, wrote to Sebi and the bourses saying the prices of Castex Technologies (formerly Amtek India) were artificially pushed up for a certain period of time, triggering a clause in the agreement that permits the company to enforce conversion.

Sources say that a vast majority of FCCB issues in India do not contain such a clause and this is one of the rare instances.

Castex is said to to have responded to the bondholders stating that the conversion is as per the FCCB agreement, while Sebi and the exchanges have so far given no formal response to the bondholders.

Castex informed the BSE on Friday that it has decided to convert all the outstanding bonds of $80.80 million out of an FCCB issue of $130 million and $56.60 million of an FCCB issue of $70 million. The conversion date for conversion of the bonds into equity shares would be September 25.

In one shot the company can now shave close to $137 million worth of debts on its books by converting this FCCB holding into equity. Bloomberg data showed that parent company Amtek Auto has been saddled with a debt of close to Rs 17,500 crore at the end of September 2014, of which Castex’s debts stood close to Rs 6,000 crore.

The clause states that if the Castex share trades at a price higher than approximately Rs 160 for a period of one month, the company can enforce conversions. The Castex stocks fell 5% on Friday on the BSE to close at Rs 176.70.

Amtek Auto, Sebi, BSE and NSE did not respond to calls and emails for the story.

Castex Technologies issued two sets of FCCBs in FY13: 6% bonds valued at $130 million in April and $70 million 6% FCCBs in September. The clause came into effect in April and July of this year, respectively, for both sets of FCCBs.

“Now, almost from the very first day of this mandatory right came into being, the stock started to trade up – we believe there is no rational or economic reason why that stock should have traded up. It continued to trade up and it traded up to the relevant price and that’s where it’s at for a period of time,” one source told FE.

A glance at the Castex stock movement from January to April shows that share traded at an average price of Rs 62 in the three months. On April 8, the Castex share price on BSE breached Rs 70 for first time since January 9, after which it assumed an uninterrupted upward trajectory. On April 27, it breached the Rs 100 mark while at the end of trading on May 22, it closed at Rs 153.95.

On June 24, the stock breached Rs 200 for the first time in Castex’s history. It touched its highest point on July 13, when it closed at Rs 361.85, up sixfold from its April 7 close. From April 7 to July 14 the volumes traded averaged at around 330,000 per day. Interestingly, volumes dropped to an average of 290 shares a day from July 15 to July 31.

Sources said that suspicions of manipulations arise from the fact that there was no apparent reason for the Castex stocks to rise this sharply. “One doesn’t want to necessarily cast aspersions on anyone, but this is all rather strange and peculiar and it seems completely divorced from any real or genuine financial or economic news about the performance of the company. The other strange thing is that the stock of the parent company has not moved at all,” one source said.

The bondholders in their letter to Sebi also drew attention to the daily limit of 5% movement in the stocks. Since the Castex stock has a 5% circuit filter limit, though the stocks have been consistently falling since it touched levels of over Rs 360, it has been able to trade above the Rs 160 level for 30 trading days between June 18 and July 31. This enabled the company to trigger the conversion clause.

After touching the Rs 360 high, the stock has fallen every trading day by exactly 5% till July 31.

When the Castex share rose sharply in May this year, some FCCB holders converted their debt into equity to take advantage of the higher price. However, these FCCB holders were subsequently left disappointed as there were very few buyers for these stocks.

Amtek Auto recorded a consolidated revenue of Rs 15,707 crore in fiscal 2014 (year ended September 2014). It cannot be compared with the previous financial year as it consisted of 15 months. Ebitda for FY14 was Rs 3,452 crore while net profit stood at Rs 941 crore. The company posted a loss of Rs 25 crore for Q2FY15, with revenue falling 15% quarter on quarter to Rs 4,065 crore.

Castex’s revenue rose 39% to Rs 3,015.03 crore in FY14, compared with the previous financial year according to results posted on the BSE website. Net profit rose 18% over the same period to Rs 248 crore.

Castex Technologies’ bondholders have also requested Sebi and the exchanges for an investigation into the matter. (Express Archive)