India Will Seek Buyer for HMT Bearings

India Will Seek Buyer for HMT Bearings The government of India has reversed course and now says it will begin aggressively seeking strategic buyers for several troubled but saleable businesses now operating under control of the Board of Reconstruction for Private Sector Enterprises (BRPSE). Among those now going on the block is HMT Bearings. Others are Hindustan Salts, Richardson & Cruddas, Tungabhadra Steel Products, and Central Inland Water Transport. HMT Bearings manufactures ball bearings, tapered roller bearings, and cylindrical roller bearings in sizes from 20mm to 260mm OD. The division expects to record fiscal 2006 sales in the neighborhood of Rs 400 million to Rs 450 million, ($9 million to $10 million) but says it still lacks sufficient operating capital to continue without guaranteed government funding. From the most recent reliable financial period, 2003-2004, HMT Bearings sales were 75% to the Indian OEM tractor and commercial vehicle market, and the remainder to aftermarket replacement sales and government-guaranteed Indian rail bearing contracts. Founded in 1964 as Nippon Precision Bearings Ltd., the company was acquired in 1980 by Hindustan Machine Tools, a massive government-run manufacturing conglomerate. Renamed HMT Bearings, it began to collapse in the late 1990's along with the rest of HMT -- buried in a mountain of debt amid a myriad of poorly-run state-supported business operations. HMT Bearings began suffering a liquidity crisis in 1999-2000. It worsened 2002 and 2003, primarily due to a massive inventory buildup and accumulation of uncollected receivables. In mid-2002, the government and HMT Group explored shutting down HMT Bearings, taking the losses and laying off all employees. But that plan was rejected, out of concern for the impact on employment and high pension costs, and in the face of intense pressure by the Center of India Trade Union in Hyderabad. Rather than shut down HMT Bearings, government-funded bailouts were instituted, debt was converted to equity in order to eliminate the overwhelming interest expense. The key moment for HMT Bearings came in 2002 via the decision to seek a strategic investor to buy out the government's by-then 97% ownership after equity conversion. Seeking an Expression of Interest from qualified buyers, an operating background for HMT was developed, along with bid guidelines (expired in August 2002): No buyers were found, losses continued and HMT Bearings' equity went negative by April 2003. There are currently 48 Public Sector Enterprises (PSEs) under government control in India; 14 have been shut down as nonviable and only 13 of the remaining 35 are profitable. Government holdings in HMT Bearings currently stand at 97.25%. Koyo owns the other 2.75% In the overall government-funded bailout programs for eight Public Sector Units (PSUs), it has already invested more than Rs 18 billion and forgiven Rs 13 billion in unpaid interest. The latest plan for HMT Bearings was approved in November 2005; the Indian Cabinet's Committee on Economic Affairs set a deadline for HMT Bearings' restructuring to be solidly under way. And with strict instructions that a non-governmental strategic partner be in place by the end of December 2006.