Two years later, Amtek Auto readies for its second resolution process

Two years later, as Amtek Auto — one of the Reserve Bank of India’s (RBI’s) dirty dozen — readies for its second run-in with the corporate insolvency resolution process, its creditors are far more cautious and the potential bidders slightly wary.

Three of Amtek group companies, including Castex Technologies, Amtek Ring Gears and Metalyst Forgings are each undergoing separate insolvency resolution process. 

Due to lack of rules regarding group insolvency, lenders of Amtek Auto are in no position to club these insolvencies in order to make it an attractive proposition for investors.

However, potential investors see value in the deal if it gives them control of all entities. “A bidder will have to submit four resolution plans and hope to win each and every one of them if he wants to control the entire company. All these entities are interlinked and have synergies. It makes business sense to acquire them as a group,” a legal expert, who did not wish to be named, said.

A recent working group report on insolvency made an example of Amtek Auto to explain the merits of group insolvency. “If Amtek was resolved along with its two other insolvent units belonging to its supply chain, the value realisation by creditors of all three insolvent companies would be larger than what would be realised if the three were resolved independently.”  

The working group noted that if insolvency law does not facilitate the recognition and treatment of these inter-linkages in a cost-effective manner, it may reduce value for stakeholders of all entities.

While Dinkar Venkatsubramanian is involved in all the cases as resolution professional (RP), the committee of creditors (CoC), unfortunately, is not a single large group. “It is a procedural group insolvency and all entities are running together. Anyone can look at buying all the four or submit bid for just one,” a person close to the development said.

The stressed company, gasping under a debt of ~12,000 crore, came back from the brink of liquidation after the Supreme Court in September allowed the CoC and RP to invite fresh bids by October 22. Amtek Auto was driven into liquidation after UK-based Liberty House, the successful resolution applicant, did not fulfil its commitment. Having gone through the grind once before, when the approved resolution plan could not be implemented, the RP has tripled the performance guarantee amount this time around to ~300 crore.

The first time the company went into CIRP (Corporate Insolvency Resolution Process), only two bids came. Liberty House was one and the other was US-based hedge fund Deccan Value Investors with an offer of less than the liquidation value of the company. Then also, there was a request by one of the interested bidders to club the group entities into one offering. But the creditors did not agree to this demand.

With potential bidders weighing their offers much more closely than before, it may not be a smooth ride for Amtek.

Pain points

 
  • Three of Amtek group companies are undergoing insolvency separately
  • But, lenders to Amtek Auto can’t club these insolvencies to make it an attractive proposition for investors
  • However, potential investors see value in the deal if it gives them control of all entities