Setco Auto Unit Secures ₹125 Crore NCD Waiver

Setco Auto Systems Private Limited (SASPL), a key subsidiary of Setco Automotive Ltd, has secured waivers totaling ₹125.10 crore on its unlisted Non-Convertible Debentures (NCDs) from India Resurgence Fund (IRF). This financial relief covers accrued investor Internal Rate of Return (IRR) and part of the redemption premium, easing future obligations for the subsidiary. However, the waiver of the premium is conditional on timely redemption.

Key Waiver Amounts

The waivers granted by IRF include:

• An Additional Redemption Premium for FY 2025-26, totaling ₹0.67 crore, split between IRF's Scheme 1 (₹15.6 lakh) and Scheme 2 (₹51.4 lakh).
• Accrued Investor IRR for FY 2024-25, amounting to ₹20.1 crore (₹4.7 crore for Scheme 1 and ₹15.4 crore for Scheme 2).
• Accrued Investor IRR for FY 2025-26, totaling ₹105 crore (₹24.45 crore for Scheme 1 and ₹80.55 crore for Scheme 2).

The total aggregated waiver on accrued Investor IRR for both fiscal years reaches ₹125.10 crore. The debenture trustee has consented to these waivers.

Financial Relief and Implications

This waiver provides SASPL with crucial financial relief, lowering its future debt servicing obligations and improving its cash flow outlook. Given Setco Automotive's past financial challenges and an upcoming stake sale in SASPL, this development is a positive step in easing the subsidiary's financial burden. The subsidiary will benefit from reduced future debt servicing costs and an improved cash flow position.

Company Context and Restructuring

Setco Automotive has faced financial difficulties for years, including net losses and high debt. In 2021, India Resurgence Fund, a distressed asset investor, injected ₹615 crore into Setco Group, primarily into SASPL, as part of a major financial restructuring that transferred Setco's clutch business to SASPL. In related news, Setco Automotive's promoters and key personnel have faced penalties and market bans from SEBI over alleged fund diversion and governance failures.

Conditions and Ongoing Concerns

The waiver of the Additional Redemption Premium is contingent upon the debentures being redeemed within the stipulated timeline. Failure to do so could invalidate this specific waiver. Additionally, Setco Automotive remains under scrutiny due to past SEBI actions regarding fund diversion and governance lapses. The company is also in the process of a significant stake sale in SASPL and a proposed name change.

Industry Peers

Setco Automotive operates in the competitive auto components sector, alongside peers like Jamna Auto Industries and Endurance Technologies. These competitors generally show stronger financial health and lower debt. Endurance Technologies reported zero debt as of FY2025, while Jamna Auto had $16.4 million in debt. In contrast, Setco Automotive has consistently reported net losses, including ₹12.43 crore in FY2025. Setco's promoters have pledged a substantial 94.6% of their holdings, and the company faces significant contingent liabilities.

Looking Ahead

Investors will be tracking the completion of the proposed stake sale of SASPL and its subsequent name change to 'Shilayan Industries Limited'. Progress on NCD redemption, particularly concerning the conditions for the premium waiver, will also be key. Additionally, Setco Automotive's overall financial performance and debt management strategies in upcoming quarters, along with any further regulatory developments, will be closely monitored.