JBF Shares Plunge Amid Talk of UAE Loan Default
Co denies rumours of default, says textile industry protests after GST hit cash flows and servicing of some debt
Mumbai: Shares of KKR-backed JBF Industries, once considered a multibagger, have halved in just two months as its deepening debt crises aggravated worries of a potential default of its $1.8 billion debt, including a 2 billion dirham ($540 million) credit line given by Dubai’s Mashreq Bank, according to people familiar with the development.
Legal proceedings may also have been initiated in the UAE against Bhagirath Arya, the company’s founder, according to several sources. But this could not be indpendently verified. JBF shares, which declined nearly 17% on Wednesday, have plunged over 55% from their 52-week high of ₹ 326 touched on June 22, as talk of the company’s troubles spread in the last three trading sessions.
JBF Industries is a large purified terephthalic acid (PTA) and polyester film maker. Currently, it has three plants globally in Ras Al-Khaimah (RAK), Bahrain and Belgium.
It commenced its first international operations in 2006 by foraying into the polyester chips and polyethylene terephthalate film business by setting up plant at RAK.
The company’s woes started after its new PTA plant in Gujarat was delayed by almost two years. Bulge bracket private equity firm KKR had invested $150-160 million (nearly ₹ 490 crore) in December 2015 at ₹ 300 per share, to support the completion of the plant, but sources said technical problems have further delayed its commissioning.
Matters compounded, after rating agencies downgraded the company’s ratings on July 28 over delay in servicing its debt obligations.
Things worsened after news spread thatthecompanyhasdefaulted.Since the crash of the stock, JBF’s promoters have pledged almost their entire holding in the company with lenders.
Someof thefundslikeNewHorizon, Cresta and Eriska Investment, and Vallabh Bhansali of Enam own shares in the company. However, none of the domestic mutual funds had any shares as of June 2017.
An email query sent to the company did not elicit any response till press time on Wednesday. On Tuesday, the company in a stock ex- change notification said that rumours of any defaults on a loan in its international operations and any other rumours beyond what was already published in a previous announcement are baseless. As of June 30, 2017, there was no delay in payment of interest or principal to any bank in the UAE, the company said.
Meanwhile, the company said it has rescheduled the board meeting to August 11, instead of August 10, to consider the unaudited financial statements for the June quarter. The company further added that due to the recent policy changes by the Indian government namely, demonetisation and Goods & Services Tax (GST) implementation, there have been shutdowns in protest in the domestic unorganised textile industry, resulting in the cash flows of the company getting severely af- fected and led to delays in servicing some of its debt obligations. This, in turn, has led to a formation of a Joint Lenders’ Forum by the lenders as per applicable guidelines of the Reserve Bank of India.
Reuters on Tuesday reported that the company is in talks with banks for renegotiating its debt of around 2 billion dirham ($540 million).
“The company’s balance sheet is overstretched with ₹ 13,500-plus crore financial liability on a company with ₹ 9,300 crore tur nover,” said G Chokkalingam, CEO, Equinomics Research and Advisory. “Work in progress of nearly ₹ 4,000 crore was not turned into assets for the long-term.” One of the analysts who was tracking the company said that the debt crises worsened because of the delay in commissioning of the Gujarat plant, which was scheduled for mid-FY16. Had it been on track, the plant would have provided strong support to the company’s margins and earnings due to impending integration benefits.
“The extended delay has resulted in cost overruns, besides worsening the already high leverage position that has been a drag on the company’s earnings.” For the year ended March 31, 2017, the company posted a consolidated revenue of ₹ 9,343 crore with a net loss of ₹ 390 crore. HIGHS & LOWS