Hero Cycles Makes MIFA Offer
SANGERHAUSEN, Germany – India’s Hero Cycles has offered to take up as much as an 89 percent ownership stake in troubled MIFA Mitteldeutsche Fahrradwerke AG under a restructuring worth in excess of 32 million euro – a deal that would stave off bankruptcy for the listed German bike-maker and force existing investors to bear the brunt of its near collapse.
Under the three-pronged restructuring and recapitalization proposed by OPM Global B.V. –the Dutch-registered vehicle through which Punjab-based Hero Cycles is negotiating – shareholders would see their holdings fall to 1/100th of their current levels. Meanwhile, investors in the company’s 25 million euro bond would absorb a reduction in principal of three-fifths, with Hero Cycles making an equivalent 15 million euro cash injection to stabilize MIFA’s finances ahead of a proposed debt-for-equity swap that would leave the self-proclaimed world’s largest maker with a minimum 60 percent stake.
Equivalent to the loss
The proposed investment level by Hero Cycles also is equivalent to the loss MIFA posted for the 2013 sales year and raises the stake above the 47% that the German maker agreed for the bailout. Announced in March and attributed to errors arising from the implementation of an inventory accounting system, the 2013 loss shaved around 70 percent from the value of MIFA shares that are traded on the Frankfurt Stock Exchange.
Holders of the bond
In addition, Hero Cycles is asking holders of the bond – issued in August 2013; as MIFA was reporting record first-half sales – to forego a 1.9 million euro interest payment that was due earlier this month. It also wants them to extend repayment by two years – to 2021 – and to permit a reduction in interest to 1 percent from the 7.5 percent agreed at launch.
The changes in terms are aimed at inducing bondholder participation in a proposed debt-for-equity swap. Along with the so-called capital cut – which will see the value of existing shares reduced at an exchange rate of 1-for-100 – MIFA will issue 880,000 new shares in response to Hero Cycles investment.
Further share issue
The Indian company has proposed committed to underwriting a further share issue that could see bondholders assuming as much as 10 percent of equity in trade for retiring the bond. The deal is contingent on a vote by shareholders, who risk seeing the value of their investment completely wiped away in a would-be bankruptcy. It also has the blessing of German securities regulators, who earlier this month absolved Hero Cycles from compliance with takeover regulations compelling it to make a public offer for outstanding shares.
Maschmeyer welcomes the rescue
Representatives for German financier Carsten Maschmeyer, whose 27 percent stake would fall to 0.27 percent under the plan, say the company’s largest single investor welcomes the rescue. The stake of Peter Wicht, the MIFA chief executive who has been absent from the company due to illness since its losses were announced, would fall to 0.24 percent.
A release issued by Cometis, a financial public relations company retained by MIFA, said the companies are working to a March deadline to set the votes necessary by equity and debt investors let the deal move forward.