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Cash crunch enforces stake sale…
The promoters of Koutons Retail (Koutons) are considering selling upto
15% of their stake (~5% of the total equity) inorder to raise cash to pay
off debt. The proposed stake sale is likely to happen through a fresh
issue of shares reducing the promoters’ stake from 32% to 27%. A few
private equity funds and a Mumbai based apparel company are
reportedly vying for the stake. The company has been reeling under
debt pressure and is not able to service the debt owing to slow-down in
sales. The management stated that they are in talks with the lenders to
reconstruct debt carrying an average cost of 14%.
ƒ Dwindling sales leads to cash crunch
Net sales slipped 53% and 41% in Q2FY11 and H1FY11 respectively.
This steep decline in the sales led to cash flow issues for the
company which made it difficult for them to service debt. There
were delays in interest payment to banks. Owing to this promoters
had to pledge ~50% of their holding.
ƒ Pledged shares update
The promoters had pledged ~50% of their holding as it was unable
to service debt obligations. Owing to a steep correction in the
company’s share price, those shares have been reportedly sold in
the market bringing the promoter stake to ~32% from 59.5% in
September 2010.
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We have been vigilant about the developments in the company owing to
declining sales and profitability. Unfolding of negative news one after the
other has led to a steep correction in the company’s share price. The
management’s efforts to reduce debt and revive the business need to be
closely tracked before taking any position in the stock.
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