A day short of the May 23 deadline for debt-ridden KTM to deposit 548 million euros (Rs 5,330 crore) owed to debtors, Bajaj Auto has shared a statement that it intends to take over operations at KTM.
The May 23 deadline was announced this February when KTM's proposed restructuring plans were approved, whereby it will pay off 30 percent of its total debt to its 2,500 creditors. This amounts to 548 million euros. The failure to meet this deadline would have resulted in KTM being irrevocably moved into an insolvency process, as per Austrian law. It appears that Bajaj Auto has now rescued KTM from that fate and the orange brand will now live on.
Existing Bajaj stake in KTM
Bajaj will increase its stake in KTM after this takeover
Bajaj Auto states that it will move from a minority investor in KTM to being the majority owner. However, the press release does not mention the extent of Bajaj’s new ownership stake after this takeover process is complete.
Bajaj’s relationship with KTM (and subsequent ownership extent) has evolved over the years and the present status is quite convoluted and difficult to understand. This is how the existing Bajaj-KTM structure is shaped, as shared by Bajaj:
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Bajaj Auto Limited has a wholly owned subsidiary in the Netherlands called Bajaj Auto International Holdings BV (BAIHBV).
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BAIHBV holds a 49.9 percent stake in its associate, i.e., Pierer Bajaj AG (PBAG) in Austria. The remaining controlling stake in PBAG is held by Pierer Industrie AG, owned by entrepreneur Stefan Pierer.
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PBAG holds ~75 percent stake in its listed subsidiary, Pierer Mobility AG (PMAG).
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PMAG is the holding company of KTM AG (KTM Business), the leading manufacturer of off-road and street motorcycles marketed under the marquee brands of KTM, Husqvarna and GASGAS.
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Bajaj effectively holds ~37.5 percent in PMAG/KTM, through the above chain, prior to this transaction.
Bajaj’s KTM rescue strategy
Total of 800 million euros being infused into KTM by Bajaj
As part of the rescue of KTM, BAIHBV has arranged a debt funding package of 800 million euros (over Rs 7,700 crore) to enable KTM to continue its business. This funding will go towards paying off creditors as well as reviving the company’s operations and working capital cycle. Of this 800 million euros, 200 million euros (over Rs 1,900 crore) has already been infused into the company in four tranches of 50 million euros (Rs 475 crore) each via Convertible Bonds/Loans over the last few months.
Of the remaining amount, 450 million (over Rs 4,300 crore) will come as a secured term loan by BAIHBV. The remaining 150 million (around Rs 1,500 crore) will be via Convertible Bonds issued by PBAG and subscribed to by BAIHBV. This will be loaned by PBAG to PMAG, who in turn will eventually fund KTM AG. Remember when we said that this was a very complicated ownership structure!
A recent issue that came to light with one of KTM’s creditors Dabepo Holding GmbH is also being handled by Bajaj. Through BAIHBV, Bajaj has taken over the commitment under the aforesaid Loan and Share Pledge Agreements from Dabepo Holding GmbH for the amount of 80 million Euros (over Rs 770 crore), which will prevent the threatened foreclosure of this loan that could have impeded KTM’s planned restructuring.
The next steps
Remains to be seen how KTM's future turns out
Bajaj states that the immediate first step is to secure binding restructuring orders from the Court in Austria to mark the end of the self-administration process and settle the creditors’ quota. Alongside this, applications are already being submitted to Austrian Takeover Commission, Foreign Investment Control and Merger Control Authorities, as applicable for their approval. Until these approvals are received, the current control setup shall be in place. After months of stoppage, the production of bikes and the supply of parts, garments and accessories to the markets will be started.
Fans of the orange brand can finally breathe a little easy knowing that a new lease of life has been secured. However, it is fair to state that KTM will still have a long road to recovery and that we are likely to see significant changes to the way this company operates, and perhaps its identity as a whole.
Sergius Barretto
Kiran Murali
Viraaj Bhatnagar
Saptarshi Mondal
Ajit Dalvi
Dinshaw Magol
