The Bombay High Court on Wednesday barred gelatin-maker Sterling Biotech from selling or mortgaging assets. The order came in a petition filed by holders of foreign currency convertible bonds (FCCBs) issued by the company.
“It (Sterling Biotech) cannot dispose of or create third party interest in it's assets on one hand, while seeking adjournment in the matter for filing reply on the other hand. It will be therefore necessary at this stage to direct the respondent company not to create any new rights in respect of its assets, except in the usual course of business, till the next date of hearing, and it is so directed,” judge N M Jamdar said in his order yesterday.
Hearing on the matter was adjourned to January 30. Bondholders had pointed out that in the past Sterling had disposed of its interests in an Nigerian oil well to a group firm at throw away prices and feared that further dilution of assets will hurt the lenders’ interests.
“Company has already divested its substantial equity holding in Sterling Oil
Resources Limited (“SORL”). It appears that the shares have been sold at an undervalue. The Company had provided a valuation report dated 27 October, 2011 which purports to determine the fair value of the shares held by the Company in SORL,” the bond holders had said in their petition.
They also sought the appointment of a provisional liquidator since the Petitioner believes that the assets, divisions, businesses and subsidiaries of the Company are being disposed of and/or will be further disposed of to defeat the Petitioner's claim on behalf of the Bondholders and frustrate these proceedings under the guise of the said restructuring proposal. The court took note of the fact that the company has shown its willingness to pay the dues of the petitioner, “however, it has shown its inability to do so in view of financial downturn.” In 2007, Sterling Biotech had issued $250 million convertible bonds. Of these, the company has redeemed and converted bonds amounting to some $115 million or 46% of the initial issue. The conversion price of the bonds was Rs 163.13. However, since the share price has plummeted to Rs 7 levels due to company’s debt problems. Thus, on May 17, the company was supposed to repay the maturity amount of $184 million, which it defaulted.
After Sterling defaulted repayment of the bonds in May, Bank of New York Mellon moved the winding up petition in October. Earlier, it had also moved a UK court against dilution of stake in SORL.