MUMBAI: Shares of Cox & Kings, among the world’s oldest travel firms with a continuous operating history of more than 250 years, have lost 90 per cent this year after the company took on debt that could not be serviced on time due to cash-flow mismatches.

But analysts are pointing to a bloated balance sheet for the precipitate stock decline even as investors sought to involve regulators to probe, what they alleged, was fraud and mismanagement.

Promoter Peter Kerkar’s goal of making aspirational travel affordable through NBFC Cox & Kings Financial Services has also remained elusive, with the stock falling 97 per cent from ₹72 on January 1 to ₹2.49 last Friday.

Cox and Kings has defaulted on three of its commercial paper offerings in just two months despite having cash and cash equivalent of ₹1,890 crore on its consolidated balance sheet and ₹723 crore on a standalone basis, as on March 31, 2019.

This came as a big surprise to investors and analysts that a default with huge cash in books didn’t move the management to correct cashflow mismatches.

Cox and Kings has defaulted on three of its commercial paper offerings in just two months despite having cash and cash equivalent of ₹1,890 cr on its consolidated balance sheet.

Rating agency CARE raised the red flag by the end of June over the company’s failure to explain the reason for default despite sufficient liquidity. Cox & Kings told ET that it has since repaid certain credit facilities and its working capital position was stretched in the first quarter of FY20, resulting in a cash-flow mismatch due to which the company could not repay commercial papers due end-June.

Investors and analysts said it is difficult to believe the company’s version of cash-flow mismatch. Some investors in a letter to the Special Fraud Investigation Office (SFIO) and market regulator Sebi last week alleged that the promoter diverted funds from the company’s books, with no details on the end use of the proceeds of ₹4,387 crore from last year’s sale of the education business to Midlothian Capital Partners. It is alleged that the money never reached the balance sheet of Cox & Kings.

“Despite inflows exceeding ₹2,000 crore from the two transactions, the company diverted from its guidance of using entire sales proceeds toward debt repayment and reduced debt only by ₹1,350 crore until April 2019,” said Rashesh Shah, analyst, ICICI Securities.

The company told ET that the sale of businesses did lead to a reduction in debt and was disclosed in the annual report of the year in which the businesses were sold. The company is yet to publish the balance sheet for FY19.

Additionally, trade receivable levels of FY18, which were guided to be the peak, have not yet reduced. Rather, they have increased from ₹1,982 crore as on March 31, 2018, to ₹2,418 crore on March 31, 2019. “The steep increase in receivables demands increased working capital and is exerting further pressure on the balance sheet,” said Shah.

But the company said there has been a delay in collecting receivables given the tight liquidity situation in India.

Another point is that 70 per cent of promoter holding was pledged as of June 30, 2019. Promoter entity Sneh Sadan Traders and Agents has availed debt of ₹944 crore against its paid-up capital of ₹9 lakh and is learnt to have pledged Cox & Kings shares as collateral for this loan. Analysts have blamed the plunge in stock prices to non-repayment of debt taken by promoter entities.

Regarding a loan of ₹1,339 crore availed from Yes Bank in August 2018, the company said that Prometheon Enterprise, a UK-based 100 per cent subsidiary of the company, availed a credit facility in 2012. This credit facility had been refinanced in March 2018, and the Yes Bank loan availed in August 2018 is not a new loan. However, Cox & Kings agreed that it has borrowed ₹211 crore from Axis Bank in September 2018 and ₹175 crore from Bank of Baroda in December 2018 for working capital despite having over ₹700 crore cash & cash equivalent.

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