Castex Technologies allots shares to bond holders amid manipulation allegations

Bond holders ask Sebi to withdraw conversion; Regulatory probe on in the matter

Even as the bond holders of Castex Technologies, formerly Amtek India, alleged manipulation, the company on Thursday converted around $80 million (Rs 530 crore)  of bonds into equity. The Amtek group company allotted 39.4 million fresh equity shares (around 11.5 per cent stake on a diluted basis) to the holders of its foreign currency convertible bonds (FCCB), at a conversion price of Rs 103 a share. The shares of Castex on Thursday closed at Rs 40.35, down 60 per cent from the conversion price. In other words, bonds worth about Rs 530 crore had been converted into equity shares worth less than Rs 160 crore as on Thursday.

These FCCB bonds had a clause of “mandatory conversion”, which was triggered after the share price of Castex remained above the threshold price of Rs 160 for a month. The company board on July 31 decided to mandatorily convert all outstanding FCCBs, worth $130 million (about Rs 850 crore), into shares.

Bond holders alleged the stock price of the company was manipulated to meet the mandatory conversion condition. The stock price of the company has hit five per cent below the trading limit on all occasions since July 13. FCCB investors, including six hedge funds, have written to the market regulator, Securities and Exchange Board of India (Sebi), to look into the movement in Castex Technologies stock price and void the conversion of bonds into equity. The bond holders have appointed legal firm Quinn Emanuel Urquhart & Sullivan and moved a court in the UK seeking compensation.

“If there is a wrongdoing or some form of corruption, whether this is a pump or dump scheme, mandatory conversion should be withdrawn and invalidated. Right now, we want Sebi to see if the price movements were fair,” Bloomberg quotes Richard East, partner at Quinn, as saying.

According to sources, following complaints by bond holders, the capital market regulator has initiated a probe into trading in Castex shares. An email sent to Sebi on this issue did not elicit any response.

According to legal experts, if Sebi is able to establish that the share price of Castex was indeed manipulated, the trustee of the FCCB issue can consider the conversion void and declare it an event of default. Citibank is said to be a trustee to the FCCB issue. An email seeking comments from Citibank did not elicit any response.

“The Companies Act provides a remedy in case of a failure to pay an admitted debt like FCCB. The creditor might consider filing a winding-up petition against the debtor company, so that its assets could be liquidated and the creditor repaid,” said Yogesh Chande, partner, Shardul Amarchand Mangaldas, Advocates & Solicitors.



Chande added Sebi investigations in such matters usually took time as the matter needed thorough investigation before arriving at a conclusion.

“As Sebi investigation takes time, bond holders can consider filing a writ petition before a court asking for reversing the allotment,” said a lawyer who did not wish to be named.

The Amtek group has an outstanding debt of a whopping Rs 26,000 crore.

Shares of Castex are down nearly 90 per cent from their 2015 peak of Rs 363 apiece, touched on July 13. Other Amtek group companies, including flagship Amtek Auto, have seen significant erosion in their value since July.

The Amtek group has outstanding debt of a whopping Rs 26,000 crore.