India’s Sakthi Sugars seeks settlement with convertible bondholders

By Tali Rackner

Norfolk, Va., Oct. 6 – Sakthi Sugars Ltd. informed the Bombay Stock Exchange that it is in active discussion with the majority of the holders of its series B foreign currency convertible bonds for a possible compromise for settlement through redemption, without involving any conversion of bonds into equity.

This would mean that there would be no need for a scheme to be considered.

In the circumstance and owing to this ongoing exercise, the company is moving the High Court of Judicature at Madras for appropriate directions, and under the circumstances, no meeting of the equity shareholders or the bondholders has been held.

The company said it hopes to reach a consensus and documentary closure shortly.

As reported in July, the court postponed an equity shareholders meeting and a meeting of holders of the convertible bonds to vote on the company’s proposed scheme of arrangement. The scheme intends to initiate a compromise with its bondholders regarding the company’s inability to service its current debt.

Leading up to the agreement, the company went ahead with plans to expand in 2008 and 2009 by installing a new sugar plant and a power generation facility. The expansion was based on the assumption that sugarcane availability would be adequate to operate the plant, and Sakthi took on bank loans totaling $60 million to fund the endeavor.

However, the following years saw a severe shortage in sugarcane and the company’s mills could not be maintained at an optimal level along with the generation facilities.

Compounding the shortage, the company said that as India’s sugar industry is “highly controlled and politically sensitive,” the sugar shortage caused an increase in the retail price of sugar without a corresponding increase in the selling price, leading to serious liquidity constraints for Sakthi.

Sakthi said in July that it has been unable to meet any of its bond obligations, and as a result, bondholders holding $1 million of the company’s series B bonds asked the Madras court to order a wind up of the company.

Under the proposed scheme, the company offered the bondholders to convert 50% of the principal amount of the outstanding bonds into equity shares at a conversion price of Rs. 30, with an offer to pay the balance in June 2024.

For every bond with a face value of $100,000, equity shares totaling 74,816 will be allotted by conversion of 50% of the bond.

All fractional entitlements not covered by allotment of the equity shares will be extinguished.

Any equity shares that remain unclaimed after one year will be transferred to the Stock Holding Corp. of India.

The scheme becoming effective is conditioned on the requisite majorities of Sakthi’s shareholders, bondholders and secured creditors voting in favor of the scheme, obtaining permission from the Reserve Bank of India and a court approval order.

If the scheme becomes effective, all litigation related to the company’s bonds and equity will be dropped.

Sakthi is a Coimbatore, India-based sugar producer.

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