The client’s challenge:
A pioneer in fermentation technology in India suddenly fell into a crisis with a change in the US Regulations, impacting company’s major products in the over-the-counter sales, resulting in a sharp fall in the capacity utilisation, revenues and negative EBITDA. Despite its technological capabilities, Company was not able to find alternate markets and use the idle capacities. Even with two rounds of debt restructuring under CDR mechanism, the company was unable to register any promise of revival. Weak financial position of the company hampered potential projects where huge capital investment was required. Idle capacities along with turbine failure in company’s plant, led to it relying on high cost power, and further led to erosion of margins. Subsequent labour unrest in both its units further compounded the problem. Lenders chose to withdraw the account from the CDR mechanism and initiate proceedings to take possession of company’s assets. Sponsors, being technocrats, were keen to leverage the technical strengths of the company and also protect the value of various approvals for the plant viz USFDA, EDQM etc but were struggling to meet the working capital, particularly, the mounting labour and statutory dues.
Brescon’s solution:
The resolution strategy was devised after taking into account reduced lenders’ risk appetite, depleting confidence of the sponsors and the realistic value of all the collaterals amongst host of other attendant factors. Benefits of the certifications from the most stringent authorities was the remnant silver-line. Brescon identified that while the company had technical expertise, to ensure long term sustainability, it was critical to rope in a strategic investor who could provide both financial and marketing support. With this objective, banking on its long term relationship, Brescon identified a reputed strategic investor in the industry. To salvage the value for the stakeholders as also provide an exit rote to the lenders, One Time Settlement of lenders’ dues was recommended. Brescon also partnered with the company by way of co-investing in the company, that reinforced the confidence of the incoming investors, to part finance the settlement.
Impact:
- The ‘Workout’ helped the company to recommence its operations and preserve the business value by protection of regulatory approvals.
- Optimised recovery for the lenders in an asset, where the value of the machinery, without the investor, would have almost been close to nought.
- Promoters confidence grew multi-fold with the Advisors (Brescon) exhibiting their faith in the Resolution Plan and their readiness to back such plan with investment, that in turn paved the way of a Strategic Investor coming on board
- Created over 4x value for the shareholders including the investors within 2 years.
