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Hit by the slowdown in the auto sector, Tata AutoComp Systems Ltd has approached Standard Chartered Bank for a covenant waiver for a period of 18 to 24 months with respect to a term loan of ₹727 crore.
The Tata group company had taken the loan from a consortium of five banks and is required to comply with certain financial covenants on a semi-annual basis, which are based on the Tata Sons subsidiary’s consolidated financial statements. The repayment of these term loans is scheduled to start in FY22. The term loans may become repayable on demand at the behest of the participating banks if any of these covenants are breached and the participating banks do not grant waiver for the breach of covenant. As of March 31, 2020, all the covenants have been complied with.
“However, due to the adverse situation created by the Covid-19 pandemic, the subsidiary company, basis its financial projections for the next 12 months, believes that it may not be able to comply with the covenants which are due on 30th September 2020 and 31st March 2021,” Tata Sons’ auditor stated in the annual report for FY20.
“Hence, the subsidiary company is in the process of approaching the lead banker for the granting of a covenant waiver for a period of 18 months to 24 months starting 1st April 2020. In the meanwhile, the lead bank has issued a comfort letter dated 07 July, 2020 stating that it would favourably consider the subsidiary’s request for waiver of expected breach of financial covenants as specified under clause 20.2 of the Facility Agreement dated 25th April, 2019 and also endeavour to work with other lenders to get their approvals on the same, on best effort basis,” the auditor added.
Considering the abnormal nature of the current situation due to Covid-19, the strong reputation of the subsidiary, the history of no loan defaults in the past and the comfort letter issued by the lead banker, the subsidiary company is reasonably certain to receive the said covenant waiver, it said.
Tata AutoComp provides products and services to domestic and global automotive OEMs as well as Tier 1 suppliers. It has 10 joint ventures in partnership with global auto component firms, through which it manufactures and markets products such as engine cooling solutions, automotive batteries, rear view mirrors, command systems, HVAC, exhaust and emission control systems and seating systems
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