Cox & Kings’ Stock Tumbles To An All-Time Low After Debt Default
Passengers carry their baggage in the departure lobby at Haneda Airport in Tokyo, Japan. (Photographer: Akio Kon/Bloomberg)

Cox & Kings’ Stock Tumbles To An All-Time Low After Debt Default

Shares of Cox & Kings (India) Ltd. dropped to their all-time low after the tour operator defaulted on its debt.

The company defaulted on payment of commercial papers worth Rs 150 crore due to cash-flow mismatch and ratings downgrade, Cox & Kings said in an exchange notification. It paid Rs 50 crore of the Rs 200 crore due, the company said, adding that it will meet the rest of the obligations via a combination of internal accruals and monetisation of assets.

Shares of the company closed at Rs 36.80 on the National Stock Exchange today, its lowest level ever. The stock has tumbled nearly 78 percent so far this year.

The default is surprising as the latest financial statements show Cox & Kings has a cash balance of Rs 1,860 crore. But the breakup could not be ascertained due to unavailability of last fiscal’s annual report. Emailed queries to the management remained unanswered at the time of publishing this story.

Rating Downgrade

Rating agencies downgraded the company’s debt instruments by a notch.

  • Brickwork cuts Rs 50 crore NCD to AA- from AA
  • CARE cuts Rs 800 crore NCD to AA- from AA
  • CARE cuts Rs 1,760 crore long-term bank facilities to AA- from AA
  • CARE cuts issuer rating to AA- from AA

Brickwork said the rating is constrained on continued high levels of shares pledged by the promoters and low market capitalisation. While flagging the seasonal nature of the tourism industry and exposure to macroeconomic factors, the rating agency said the downgrade factors in constrained working capital with the rise in receivables and limited growth in profitability after the sale of its education tour business last year.

To bring down its debt, Cox & Kings sold HB Education in October 2018 for Rs 1,400 crore. The sale, according to the company, was prompted by a slowdown in growth and high capital requirements.

The deal, however, didn’t pare the debt to the levels it expected, CARE said, citing it as one of reasons for the rating action. Increase in receivables and pledged shares remain a concern, it said.

Moreover, according to CARE, the interest coverage deteriorated from 3.25 times in financial year 2017-18 to 2.81 times in FY19. And that came as revenue fell and margin narrowed.

Margins of the hotel business deteriorated as the company incurred higher costs to strengthen execution capabilities and lower profits from new hotels, HSBC said in a note.

Promoter Pledge

Both the rating agencies are concerned about 63 percent of the promoter holding being pledged to lenders. The drop in share price has significantly curtailed financial flexibility to an extent, CARE said.

The promoters own 49.8 percent in the company. Foreign investors—including Vanguard, Capital International, New Horizon—hold 39.4 percent.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.