Bond default complicates things for Amtek

Firm's earlier borrowings are now classified as Special Mention Account-2, and close to becoming NPAs

After its bond payment default, Amtek Auto is likely to find it difficult to get more funding from lenders.

Loans given earlier to the Delhi-based automobile components maker are now classified as Special Mention Account-2, where interest and/or principal are due since 60 days. A loan is classified as non-performing if not serviced for at least 90 days. Banks have to necessarily form a joint lenders forum for loans more than 60 days due, and have been advised by the banking regulator to take corrective action to stop it from becoming a non-performing asset.

Banks have extended loans worth Rs 7,000 crore to Amtek. “We'd almost decided to provide additional credit lines, so that the company could service its loans. However, now that it has defaulted on bond payments, we have to think twice,” said a top official from a public sector bank with exposure to Amtek.

Sources said banks were earlier willing to extend loans of Rs 2,000 crore to Amtek, which could have enabled the company to service its loans for the next two years. The bond default has complicated the matter, as at least two public sector banks were subscribers to the bonds. Issued in 2010, these carried a coupon of 10.25 per cent. It defaulted on a Rs 800 crore bond repayment, due last Sunday.

“The banks which subscribed to the bonds were part of the consortium which has extended loans. It will be difficult for these banks to extend any further loan to an account which has defaulted on payment,” another banker said.

Amtek reported a 'temporary cash flow mismatch' last month. Its rating was then cut four notches in one stroke. The stock has plunged 70 per cent since mid-August. Two debt funds of JPMorgan Chase  that bought Amtek debt restricted redemptions after a string of investors demanded their money back.

Banks have asked it to sell stake in companies (mostly abroad) where it has a minority stake. Apart from raising cash to repay debt, the management also faces an inquiry by the Securities and Exchange Board of India, following complaints from bond holders of Castek, a subsidiary company, of price manipulation to trigger the conversion of a $200-million foreign currency convertible bond into equity.

The promoters have infused Rs 75 crore into Amtek. They also plan to raise $1 billion by selling equity in foreign businesses and some non-core businesses and industrial assets in India.