A joint consortium of Reliance Industries and Assets Care & Reconstruction Company (ACRE) is known to have furnished an improvised offer of Rs. 3,651 crores towards acquiring bankrupt company Sintex Industries. The consortium had earlier offered Rs. 3,405 crores to acquire the Gujarat-based textile firm that is in the process of insolvency proceedings. From the top applicants that had bid for Sintex, the Reliance-ACRE consortium was declared as the highest bidder by lenders.
Here is all you need to know about Sintex Industries and the takeover by Reliance-ACRE.
Sintex, formerly known as Bharat Vijay Mills, was established as a textile mill back in the 1930s. The company first started its operations in Kalol, Gujarat. It was rebranded much later as Sintex Industries and was known as a cotton yarn cum fabric maker. The popular Sintex tanks which is a product of Sintex Plastics. This company is a sister concern of Sintex Industries which was demerged in 2017
With increasing competition combined with the tough economic situations during Covid-19, the company’s sales experienced a massive hit, resulting in the company filing for bankruptcy.
In April 2021, since Sintex Industries could not repay Rs. 15-crore of non-convertible debentures, the NCLT’s Ahmedabad bench officially announced the insolvency plea filed by Invesco Asset Management (India).
What went wrong with Sintex?
Sintex Industries lost its wealth in the past few years due to rising costs and higher debt combined with sluggish demand that depleted its cash reserves. The company recently saw a credit rating downgrade as it defaulted on debenture payments. Sintex industries saw investor wealth being lost as it focused on its textile segment, making yarn and fabric. As the cost of cotton rose two times, the company saw pressure on its profits.
With slowing sales and higher prices, the company had no option but to resort to debt. Last year, as its finance cost rose and earnings dropped, the company saw its Non-convertible debentures rating being downgraded from ‘C’ to ‘D’ by CARE Ratings Ltd.
Sintex acquisition by RIL-ACRE
Due to the non-payment of debt, insolvency proceedings were initiated against Sintex Industries in April 2021. The company owed around Rs. 7,500 crores to debtors. As part of the Insolvency & Bankruptcy Code procedures, the CoC must approve a bid by a minimum of 66% votes in favour before the NCLT gives final clearance.
In December 2021, there were three bidders apart from RIL and ACRE to take over the company. These included Himatsingka Ventures Pvt Ltd, Welspun Group’s Easygo Textiles and GHCL Ltd.
While Himatsingka Ventures offered Rs. 3,297 crores, Welspun Group proposed Rs. 3,102 crores and GHCL’s offering stood at Rs. 2,140 crores to acquire the beleaguered textile company. However, since Reliance-ACRE’s latest bid stood at Rs. 3,651 crores, the Committee of Creditors (CoC) approved the same with 100% of their votes through an e-voting process.
What happens after the Sintex acquisition?
As per the resolution plan submitted by Reliance Industries Ltd along with Assets Care & Reconstruction Enterprise Ltd, the proposal is that the existing share capital of Sintex be reduced to zero. Thus, the plan suggests that the company be delisted from the stock exchanges, i.e. NSE and BSE.
Therefore, as the date of the acquisition comes near, the existing retail shareholders are advised to liquidate their investment since their capital will turn to zero post-acquisition.
What should investors know?
In most companies that undergo insolvency proceedings, equity investors are usually the first in line to bear negative consequences. Investors who continue to own the company’s stock may see their capital come down to zero in the next few days. Therefore, experts are advising caution to investors, specifically those planning to make fresh investments in the company.
Existing retail investors who choose to retain their shareholding in Sintex Industries post-delisting can sell their shares in the OTC market. However, this may be risky due to potentially lower liquidity levels in the OTC market as compared to stock exchanges.
Since the news of Reliance Industries & ACRE potentially acquiring the bankrupt Sintex Industries has emerged, investors have been on a buying spree of the company’s stock. As per market statistics, the last month has seen the company’s share value nearly double to reach Rs. 11 to Rs. 12 per share.
Delisting means the removal of a listed company’s securities from a stock exchange. After delisting, a company’s securities are no longer available for trading on the stock exchange.
Existing Sintex Industries shareholders, especially the retail shareholders, may suffer losses as a consequence of the company’s share price dropping due to a bankruptcy filing. Also, those shareholders who retain the shares after delisting may face losses due to the inability to sell them on stock exchanges.
Companies usually declare bankruptcy under prevailing laws if they are unable to repay the debt within the timeline permitted by the debtors.
As per the bidding process post-bankruptcy declaration, the highest bidder usually wins the race to acquire the bankrupt company. Since the consortium of Reliance-ACRE offered the highest bid for Sintex, it has been chosen for acquiring the company.
The idea of acquiring a bankrupt company is to tap into the growth and business opportunities offered by the company. Reliance-ACRE has bid for Sintex Industries as part of its strategic growth and business objectives.