Aston's financial baggage is probably the reason Mahindra has cooled off towards the bid
The $15.4-billion Mahindra Group appears to have pulled out of the race for troubled luxury car brand Aston Martin.
According to sources in investment banking circles, the brand's financial baggage is probably the reason why the Indian auto major has cooled off towards the bid.
The entire top brass of M&M, who were camping in London till last week, have now returned and subsequently flown off to Beijing for the company's annual Blue Chip conference.
M&M chairman Anand Mahindra has also been tweeting about the Beijing conference. Meanwhile, sources say the European private equity fund Investindustrial's top team are still in London as negotiations for Aston Martin continue.
Sources say that apart from Aston Martin's own financial baggage, the Mahindra team was also influenced by the fact that TID (The Investment Dar), the Kuwait based owner of half of Aston Martin Lagonda, is itself undergoing a court-endorsed rehabilitation process.
Last year, TID announced that it would kick off a plan to restructure 1.37 billion dinars ($5 billion) of debt on June 30, 2011. The company had also announced that Kuwait's Special Circuit Court of Appeal had approved its request to apply to the country's Financial Stability Law.
This was necessary for the restructuring plan to work within the legal framework of Kuwait. The restructuring would span eight and half years. Sources say although the Aston Martin brand is still a strong one, M&M was not willing to step in merely as a portfolio investor.
The Mumbai-based conglomerate has always insisted on management control and has turned around another distressed global asset it picked up in 2010 - Korean auto major Ssangyong. With Aston Martin, TID was unwilling to offer majority control.
Discussing why TID is unwilling to offer anything more than 40% of Aston Martin stake in its bid to get fresh investments into the company, financial experts say it's because any infusion of capital has to steer clear of the change of control covenant on Aston Martin's 300 million pound high-yield bond debt.
TID took out the high yield bonds last July to refinance existing debt. Any change in controlling stake would trigger the covenant that would compel TID to buy back the bonds at 101% par value.
Last week, TID came out with an official statement that clarified that Aston Martin was not up for sale and that the capital infusion would be just that. Given that, investment bankers are now wondering whether the race for the 007 marquee was ever a race, since management control was never on offer.