HFCL Ltd Reduces Subsidiary HTL's Guarantee

HFCL Limited has issued a new corporate guarantee of ₹265 Crores for its subsidiary, HTL Limited, replacing a previous guarantee of ₹295 Crores. This move lowers HFCL's potential financial exposure.

What Happened

HFCL provided a new corporate guarantee totaling ₹265 Crores for HTL Limited to support its working capital facilities. This new guarantee replaces an earlier one of ₹295 Crores.

The guarantee was formalized via a Second Amended & Restated Deed of Corporate Guarantee with SBICAP Trustee Company Limited. The new sum is distributed among SBI (₹105 Cr), Yes Bank (₹115 Cr), and Kotak Mahindra Bank (₹45 Cr).

Why It Matters

This action reduces HFCL's contingent liability related to HTL's working capital by ₹30 Crores. A contingent liability means HFCL would only be required to pay if HTL defaults on its obligations. The reduced amount signifies a lower potential financial risk for the parent company.

Background

HTL Limited, which manufactures Optical Fiber Cables (OFC), is 74% owned by HFCL. The Indian government holds the remaining 26% stake.

What Changes Now

HFCL's total exposure as a guarantor for HTL's working capital facilities is now ₹265 Crores. This will be noted as a contingent liability in HFCL's financial statements, indicating the potential obligation if HTL cannot meet its debt payments.

Key Risks

The main risk is HTL's capacity to manage its working capital debt. Any default by HTL would activate the corporate guarantee, making HFCL responsible for the ₹265 Crores.

Next Steps

Investors should closely watch HTL's financial performance and its ability to handle its working capital needs. Any future developments regarding this guarantee will be important to track.