Adventz faces challenge as Zuari Agro shuts plant
Till recent years, the Adventz Group, led by Saroj Kumar Poddar ( pictured), was making headlines for taking over-stressed assets from other business houses, including the much-publicised acquisition of Vijay Mallya’s Mangalore Chemicals & Fertilizers.
A year later, another group firm, Texmaco Rail acquired its rival Kalindee Rail Nirman (Engineers) — making it a formidable player in the railway infra business. Poddar’s flagship Zuari Agro Chemicals (ZACL) was the toast of the town, with every banker making a beeline to Poddar’s office with M&A offers.
But the party soon ended with the group delaying its loan payments and bankers worrying over the future of the group. Last week, the group flagship announced closure of its NPK-A fertiliser plant citing non-availability of workers. At the same time, Mangalore Chemicals announced to the stock exchanges that its outstandings are ~224 crore to banks.
Bankers say they are worried especially after the group flagship’s plans to raise ~400 crore via a rights issue was put off and ongoing pandemic disrupted sales and production. “The road ahead looks difficult, but if the group manages to sell its assets in time, it will be able to tide over the crisis — provided the pandemic does not disrupt its production further,” said a senior banker.
ZACL’S problems started in April last year when it began delaying payments for the letter of credits. The problem soon snowballed and it failed to meet several of its debt obligations. India Ratings even downgraded its debt instruments in the default category in March last year.
To make the matters worse, its plants stayed shut for most of FY20 with urea plants starting only in January. GAIL (India) also had to cut off gas supplies after the firm failed to pay its dues. After ZACL agreed that the urea subsidy would be deposited in an escrow account from which GAIL will be paid, the gas supplier decided to resume supply.
Since January, bankers said the firm managed to pay its debt obligations — thanks to the ~274 crore of unsecured loans provided by the promoters. The release of the subsidy by the government and collections from the market also helped. The firm also decided to sell 30 per cent in Zuari Farm Hub (ZFHL), a wholly-owned retail subsidiary to which the assets of specialty fertilisers, retail, crop protection, and cropcare business was transferred.
With the stake sale expected to be completed this year, the proceeds from the stake sale will be used for deleveraging of the balance sheet of ZACL. The flagship also plans to sell land parcels, and the fertiliser assets of ZACL by end of FY21 to repay loans.
While announcing FY20 loss of ~802 crore, the firm blamed delays in receipt of subsidy and drought like situation in its key markets for the deterioration in its liquidity profile. The firm said it was unable to pass on the increase in the prices of the raw material to farmers, which contributed to the cash flow mismatch. This finally led to a net liability position of ~1,506.22 crore as of March. These factors impacted cash flow and debt position and led to downgrading of the firm’s rating to default and prolonged plant shutdowns.
The road ahead, the firm says, looks better, thanks to the banks clearing its debt resolution plans and sale of assets. All accounts are now standard with all lenders since January 2. Also, some plants have started due to availability of raw material and working capital, helping upgrading of (ICRA) rating to B stable in April.
But the revival plan hinges on a merger plan. Morroco’s OCP Group and Zuari agreed to evaluate the merger of its Goa plant to Paradeep Phosphates at a valuation of $280 million. This transaction, as and when it is cleared by the government, will help Zuari to reduce its debt. Some of the minority shareholders are already protesting the merger, saying it will convert the company to just a holding company — leading to a holding company discount in the stock markets.
The last word on the lifeline merger, therefore, is still not written yet.