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Motherson Sumi Systems to raise up to Rs 1,000 crore to secure liquidity

IBEF:  April 15, 2020

A leading auto components supplier, Motherson Sumi Systems Ltd (MSSL), received approval from its board of directors to raise up to Rs 1,000 crore (US$ 143.08 million) to secure liquidity while dealing with the global coronavirus pandemic.

According to the company, its board has assigned the responsibility to the committee of directors who would evaluate various borrowing proposals to raise the required funding.

“To further enhance liquidity in these uncertain times, the board of directors has accorded in-principle approval to raise up to Rs 10 billion (US$ 143.08 million) and delegated its committee of directors to evaluate and decide on various borrowing proposals. We are also proactively working to leverage on various government support schemes to enhance liquidity," as per the MSSL official statement.

As on March 31, 2020, consolidated net debt level of the company stood at Rs 7,150 crore (US$ 1.02 billion). It included Samvardhana Motherson Automotive Systems Group B.V. or SMRP’s, in which MSSL holds 51 per cent stake, net debt of euros 702 million.

According to the unconsolidated financial result, it’s consolidated cash as on March 31, 2020 stood at Rs 4,690 crore (US$ 671.05 million), out of which SMRP reported cash reserves of euros 412 million for the period.

“We have adequate headroom in our bond documents to utilize the above and there are also no major maturities of debt in the next 12 months," the company said in a statement.

The company has been rationalizing costs, controlling non-critical business investments and optimising working capital to conserve cash flows across its global footprints.

It has also been working with the governments, which have instituted employment protection schemes and are bearing part of employee costs during the lockdown period in order to reduce its fixed cost. The investment in major capex was also completed in the last fiscal and that any new future capex requirements would be aligned with the new product launch schedules of its customers.

Its plant in China and South Korea are also operational. Although, MSSL’s plants across India, Europe and America are temporarily closed, it said that it has received reopening dates for vast majority of the plants by end April or early-May.

“Multiple internal task forces have been created to monitor the situation on a daily basis across all our plants," it said.

Mr Vivek Chaand Sehgal, chairman, MSSL, said the unprecedented covid-19 crisis has hindered the management’s plan of closing its target acquisitions.

“However, we believe that these same opportunities have become more attractive in valuations since the covid crisis," he said adding that the customers have asked to look at companies that can be acquired at low valuations.

“We wanted to showcase our plans to the investors in June but keeping in mind the current environment, we will probably do so in October," he added.

The company also updated that Samvardhana Motherson International Ltd or SAMIL, which owns 33.43 per cent in MSSL, has paid part of latter’s debt and subsequently 30.5 million MSSL shares are expected to be released from pledge this week.

“It intends to pay back more facilities from internal accruals and dividends going forward," it said.

Fitch Ratings has downgraded the company’s long-term issuer default rating (IDR) to BB from BB+ with negative outlook due to the impact of the pandemic.

“The negative outlook reflects the risk of further deterioration in SMRP's credit profile if covid-19 spread is not controlled or is prolonged, leading to a more pronounced and extended impact on economic growth and new auto sales globally," Fitch said.

MSSL had reported significant exposure and dependency on its European operations, where Europe and Volkswagen Group contributed more than 40 per cent and 28 per cent of consolidated revenues in FY2019, respectively.

In FY2019, the company’s consolidated sales stood at Rs 62,570 crore (US$ 8.95 billion), which included Rs 55,100 crore (US$ 7.88 billion) from overseas businesses and Rs 7,400 crore (US$ 1.06 billion) from domestic operations.

The company has witnessed a significant rise in net debt over the past years, increasing from Rs 3,200 crore (US$ 457.86 million) in FY15 to close to Rs 8,000 crore (US$ 1.14 billion) in FY19. The company has set up more than 30 new manufacturing plants globally including India in the last five years thereby adding enormous fixed costs.

 

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.