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

The Economic Times - - Smart - Ra­jesh Mas­caren­has & Ari­jit Barman Mar­ket In­tel­li­gence

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.

VALUE ERO­SION

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

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