‘Cos in insolvency are like melting ice cubes’

Suresh P Iyengar Mumbai | Updated on October 06, 2020

Delay in resolution process worries Deccan Value Investors, the highest bidder of Amtek Auto

The US-based hedge fund Deccan Value Investors LP, the winning bidder for Amtek Auto, has stirred a hornet’s nest by enforcing 'force majeure' for the first time ever in insolvency proceedings in India. The move has upset bankers’ expectation to become second time lucky. Earlier, Indian-born British businessman Sanjeev Gupta-owned Liberty House wriggled out after being declared as the highest bidder for the company. Following this, the Supreme Court ruled fresh bidding after staying liquidation order of NCLAT. With DVI enforcing force majeure, the Amtek Auto insolvency case is back to square one. Vinit Bodas, Managing Partner, Deccan Value Investors, explains the company’s stand to BusinessLine. Excerpts:

Will Deccan Value Investors close the Amtek Auto deal, if the Supreme Court settles the ongoing disputes?

We submitted our resolution plan based on a detailed analysis on the steps needed to revive the company. As a prudent investor, we included certain conditions to ensure the bid was viable for both Amtek and DVI. The land issue was just one of several conditions in our resolution plan that was not resolved. Clauses concerning force majeure, long-stop date and the land lease were negotiated with the banks to build comfort and robust contractual protection. It is incorrect to suggest that DVI has unilaterally withdrawn from the process. If these issues had been addressed and resolved satisfactorily, we were ready to buy the company. In fact, we had selected a CEO candidate to quickly take over management of the company. It is important to remember that the IBC is new and the law is still evolving. Therefore, it was important to add protection given this additional uncertainty. Finally, the company is in insolvency which means that the value of the assets is diminishing every day. It is like a melting ice cube and delays have very negative consequences.

What made Deccan Value put in an unprecedented force majeure clause in the bid?

A force majeure clause is not unprecedented. It is customary for commercial contracts to include Force Majeure or Material Adverse Change clauses. There is nothing unusual about it and at DVI, we make this a condition in most of our investment agreements as part of our overall approach to managing risk. Importantly, in the case of Amtek, the clause was discussed and negotiated transparently with the CoC, which agreed to its inclusion.

According to the resolution plan, what are the events that would trigger force majeure?

DVI’s resolution plan made clear at the outset that any material adverse impact on Amtek’s financial performance, including significant deterioration in revenues and value of its assets owing to a pandemic, would trigger a force majeure protection. In March, Covid-19 triggered an immediate and accelerating deterioration in industrial activity across the economy. The impact was severe on the auto sector and Amtek’s financial position worsened quickly, rendering DVI’s commercial assumptions for the company redundant and triggering the clause.

Will you consider more asset in future under insolvency proceedings in India?

DVI has been investing in India for over two decades and we would not have bid for Amtek if we did not have confidence in the long-term outlook in Indian economy. The IBC is fundamentally a welcome forum but still needs time to settle down. DVI is an international fund with investments worth $3 billion in over 10 countries. In Amtek, we are simply exercising our contractual rights within our resolution plan, which was agreed to by the CoC. We do not believe that seeking to enforce a contract that is so patently void is in the best interest of enhancing confidence in investing in India. Failure to uphold the sanctity of contract undermines India’s efforts to cement a reputation as a safe and secure home for global investors to do business. We have faith in Indian judicial system. We must now let this legal matter take its course.

Do you think Amtek Auto is not worth even the committed upfront ₹500 crore?

We do not know what Amtek is worth today as the RP has declined multiple requests for information about recent financial performance about the business. Our January bid is in excess of ₹2,700 crore. It is simplistic and inaccurate to take the upfront element of our bid and suggest that is the value we ascribed to Amtek. It fails to recognise our commitment to bring significant working capital, capital investment, including plant modernisation and payments to workers and daily wage earners among other expenditure. Our resolution plan reflected the fact that the IBC process is not just about recovery but also to secure the long-term viability of the underlying asset. The amount of cash we were paying creditors was only one component of our plan’s assumptions. Therefore, it is a mistake to suggest we valued Amtek at ₹500 crore.

Did Deccan Value misread the prospects of the Indian auto sector amid Covid?

DVI submitted its resolution plan for Amtek with a detailed strategy to revive the company’s fortunes. In March, Covid-19 triggered an immediate and accelerating deterioration in industrial activity and Amtek’s financial position worsened quickly. As the past months have shown, even the most successful and sophisticated companies in the auto sector could not have predicted the impact of the virus on the industry.

Published on October 06, 2020

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