Debt-laden Amtek's Arvind Dham lists group assets for divestment
Amtek , in dire need of funds, is likely to be looking for early closing of transactions, which analysts say could pose valuation risks.
Being crippled by a cash crunch – debt-laden Amtek last month defaulted on an Rs 800 crore repayment – the group is in dire need of funds and is likely to be looking for early closing of transactions, which analysts say could pose valuation risks.
"…we have embarked on quick restructuring," Dham told ET. "Fast monetisation" of the assets will enable the group to normalise soon, he said. It has set an internal target to generate $1 billion (Rs 6,500 crore) in a year by selling assets.
Several of the businesses the group acquired over the years weren’t core to its main operation of making auto parts. Some were driven by Dham’s passion for the food business. These non-core businesses are what Dham is primarily targeting to raise funds, as the chairman has listed out for the first time the assets he has earmarked for sale. Dham plans to sell a 30-40 per cent stake in Carnation Hospitality, which manages the food business. Last year it acquired the Barista Coffee chain from Lavazza Spa and has also brought global brands like Wendy’s, Kylin Food and Jamie Oliver to India. The total food business has a turnover of Rs 200 crore. Carnation also owns Mapple Hotels. The group wants to sell Amtek Railcar Industries, which makes railway freight cars. Negotiations are in progress with two potential buyers from China and one from the US to sell a 50 per cent stake. In Rajpura, Punjab, the group has a fabrication business that builds steel structures of bridges for Delhi Metro. This also features on the divestment list. According to Dham, this business is valued at aboutRs 250 crore. The group is selling the 50 per cent stake it holds in SMI Amtek Crankshaft, a joint venture with Japan’s Sumitomo Metal Industries and Sumitomo Corporation, and part of the auto parts business. The packaging business under Rollatainer Packaging has also been put on the block in India. Overseas, Dham said a part stake sale is under way, for which KKR has the first right of refusal. It had hired investment bank Morgan Stanley to find buyers for a stake of as much as 30 per cent in some of the overseas units, Dham said last week.
But its current situation could pose a problem when it goes to the market to sell the stakes. "They certainly don’t have much headroom to negotiate as most people know that this is more of a distress sale. It is known that they are selling because they want to get out of the mess," said Amit Tandon, managing director of Institutional Investor Advisory Services. Abdul Majeed, partner and automotive expert at Pricewaterhouse, also has a similar view.
When the group was on an acquisition spree, many analysts had flagged concerns of over-leveraging the balance sheet. It is currently sitting on aboutRs 18,000 crore of debt and is aiming to reduce that to Rs 12,000 crore in one year.
As demand started declining overseas, he shut down seven factories in the US, UK and Germany and relocated them to India to lower the cost of production. The contribution from overseas business, which was 40 per cent to revenue, was brought down to 15 per cent in 2008. "We made structural changes," he said. John Flintham, Amtek’s deputy chairman and global CEO who at that time headed the overseas business, also relocated to India. Handling the financial crisis of 2008, Dham said, was a huge learning in restructuring a business