Defaults raise a curious case of mismatch at Cox & Kings

The default amounts, of Rs 150 crore and Rs 50 crore, look minuscule when compared to what the company claims it has in its coffers.

July 02, 2019 / 01:24 PM IST
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The second default by Cox & Kings on its commercial paper, this time of Rs 50 crore on June 28, has brought to fore a curious but sharp mismatch between its seemingly healthy liquidity position and inability to meet payment obligations.

The company, in a statement to the BSE, said it has defaulted on a commercial paper. "Out of aggregate amount of Rs 65 crore, Rs 15 crore has been paid and the balance amount of Rs 50 crore has not been paid," said the company.

This comes after its first default of Rs 150 crore on June 27. It was able to make payments of only Rs 50, out of the total requirement of Rs 200 crore.

The default was followed by a series of downgrades by rating agencies. After the second default too, Brickworks and Care Ratings downgraded several of company's instruments.

Bickworks downgraded  company's Rs 375 crore CPs and Rs 1,685 crore CPs to ‘D’ from A1+while Care Ratings made a cut on the company’s Rs 375-crore CPs to ‘D’ rating from A+, and Rs 1,685 crore CPs to A4 from A+.


The mismatch

The default amounts, of Rs 150 crore and Rs 50 crore, look minuscule when compared to what the company claims it has in its coffers.

Following are a few of the items a shareholder, who holds 9,000 shares of the company, pointed out in his letter to Cox & Kings CEO Peter Kerkar.

# It has cash balance of Rs 1,830 crore

# Trade receivables of Rs 2,418 crore.

Apart from this, the Group also sold its education business for more than Rs 4,000 crore last year.

"I have been unable to find where this money has disappeared as it is not reflecting under any head in the annual results," said the shareholder.

Shedding some light on the mismatch, a chartered accountant at a leading audit firm pointed out that Cox & Kings has immediate payment obligations.

"The company has cash but it has about Rs 2,900 crore of debt, of which almost 43 percent is short-term debt," he said.

Also, he pointed out, "the cash seen on the books includes foreign exchange and customer advances which is not liquid and hence unusable."

Cox & Kings is yet to respond on specific queries and is said to be preparing a response to its shareholder. In a statement to the bourses late on July 2, it accepted that the working capital situation was "stretched in the last few months and was further impacted due to its inability to replace the short term loans with long term loans/regular working capital lines."

Adding that it is taking "All required measures to resolve the temporary cash flow mismatch," and will be "approaching its lenders to work out some time bound program to meet this emergency."

The company's assertion that it has a "robust operating business" may not be enough to calm investors' nerves. In a week, it stock is down 32 percent on the BSE, and more than 60 percent in a month.

The investors are surely looking for more clarity, and till then, the concerns will remain.
Prince Mathews Thomas heads the corporate bureau of Moneycontrol. He has been covering the business world for 16 years, having worked in The Hindu Business Line, Forbes India, Dow Jones Newswires, The Economic Times, Business Standard and The Week. A Chevening scholar, Prince has also authored The Consolidators, a book on second generation entrepreneurs.
M Saraswathy
first published: Jul 2, 2019 01:24 pm

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