10 ways to stretch cash flow this winter

Despite how well you budget or how efficiently you manage your farm business, there may be periods in which cash flow is negative. No one knows for sure when they will occur, or how long they will last. Thats why every farm should have a financial contingency plan to provide for unexpected cash flow shortfalls.

Consider these ten ideas as a way to improve your operations liquidity when projected cash inflows fall short of projected cash outflows.

1. Utilize cash surpluses youve built up from previous years. This may involve tapping into savings accounts or liquidating financial assets.

Steve Johnson is an extension farm management specialist at Iowa State University.

2. Tap into a credit reserve or unused borrowing capacity for both current expenses and longer term investments.

3. Sell stored crops, which are part of the farms working capital. You can still use futures, options and/or basis contracts to benefit from potential higher futures prices should they occur in the spring or summer months.

4. Refinance current liabilities by using equity in longer term assets, such as land or machinery. Likewise, try to lengthen the repayment period on term loans. Balloon payments can also be used to reduce debt servicing in the short run. This would allow for smaller payments in the short term and a large payment at the end of the borrowing period, when cash flow has (hopefully) improved.

5. Hold off on capital asset purchases. Refurbish existing equipment instead of replacing it. Consider leasing assets instead of owning them; Machinery lease payments are often lower than loan payments

6. Take advantage of the Farm Service Agency guaranteed loan program to reduce credit risk with your primary lender and improve repayment terms and interest rates. FSA also offers low-interest marketing loans on stored grain for up to nine months.

7. Increase nonfarm or off-farm income. Family members can provide part-time or full-time employment that might bring in added income and reduce health care and insurance expenses. Alternatively, use your farm assets and labor to perform services for others. Examples include moving snow, hauling grain, installing tile, repairing machinery and remodeling buildings.

8. Cut nonfarm expenses, especially family living costs. Postpone investments in vehicles and non-essential assets. Utilize consumer credit or educational loans, if necessary.

9. Cancel or renegotiate cash farm leases if high cash rents make it unlikely that you will at least cover variable costs. Propose a flexible cash rent or crop-share arrangement. Cash outlays can be reduced even further by converting a farm lease to a custom farming agreement.

10. Sell off less productive assets to raise cash. If liquidating assets produces a large taxable income, check to see if income averaging with prior tax years can reduce your tax liability.

Low crop prices and high costs affect everyone. These ten ideas are not substitutes for good management. In some cases, actions that are not profitable in the long run may have to be taken in order to cover cash flow obligations in the short run. But, depending on the severity of the farms financial condition, any of them can be applied as a means to continue operating until profitability returns.

Johnson is extension farm management specialist at Iowa State University

India: Amtek Auto fails to meet bond redemption deadline of Sep 20

Amtek Auto Ltd on Monday failed to repay its institutional holders nearly Rs.800 crore in bonds that were due for redemption on 20 September, said three people familiar with the matter, suggesting that the company may have defaulted on its scheduled payments.

Amtek was supposed to repay the amount to its bondholders as the bonds it had issued in 2010 matured on 20 September, Sunday.

Two of the people quoted above, holding Amtek Auto bonds, said no payment was received till the end of day on Monday.

“We have taken it as a default as the payment was due today. The joint lenders’ forum has called bondholders and company officials for a meeting shortly,” said first person quoted above, an official with a bank who holds bonds of Amtek Auto.

Payment had not been received till the end of day, confirmed the second bondholder, adding that some repayments to retail investors may have been made.

The third person quoted above and directly involved in the repayment process said the company did not respond to queries on whether payments are being made. No update was received till the end of the business day, the third person said.

Axis Bank Ltd, the lead arranger for the bond issue, also did not respond to calls. Amtek Auto executives did not respond to calls and emails seeking clarity on plans to repay bondholders.

Meanwhile, the joint lenders’ forum deciding on a corrective action plan for Amtek Auto Ltd’s Rs.6,500 crore loans is still debating the company’s request for additional credit.

There is no consensus among the lending consortium on the issue of additional loans being granted to the company, said three lenders in the know. Discussions, however, are on, the bankers said.

“It may take a couple of weeks before any definite decision arises. They (Amtek Auto) have also floated a structured asset sale plan to lenders but that too will have to wait till lenders agree on fresh exposure,” said one of the three people quoted above requesting anonymity.

Some lenders in the consortium are against approving additional funds, said two bankers familiar with the discussions.

“The company has defaulted on its debt obligations to someone. It is not our job as lenders to approve extra funding for that. As of now, the company is trying to look for external sources of funding as well,” a senior public sector banker, who wanted to remain unnamed, said.

Still, a plan to approve fresh loans to the company may be cleared if majority of the lenders agree. According to Reserve Bank of India (RBI) norms, if a proposal is accepted by 60% of lenders by number and 75% of lenders by loan amount, others are required to abide by it.

In an interview on 11 September, vice-chairman and managing director of the company John Flintham said the company is looking to raise $1 billion by divesting its stake in some its subsidiaries.

It is in talks with investors to sell a minority stake in excess of 25% (going up to 49%) in its global subsidiary Amtek Global Technologies Pte Ltd, Flintham said. Flintham declined to say who the company is negotiating with.

However, since then there has been no update on these proposed monitization plans. “When one is in trouble, even selling of assets becomes difficult simply because the buyers want to be extra cautious before signing,” said Arun Kerjriwal, director of Kejriwal Research and Investment Services Pvt. Ltd.

“The Amtek group is stressed and it therefore becomes imperative that any assurance given to the market is met,” he added.

As of March, the company had total debt of Rs.7,844.12 crore. Amtek Auto’s interest coverage ratio, a measure of how easily firms can meet their interest costs, has slipped from 7.28 in March 2008, to as low as 0.09 times at the end of June.

On Monday, shares on Amtek Auto closed at Rs.51.90, up 7.23% on the BSE. The benchmark BSE Sensex closed at 26.192, down 0.1%. Since the start of this year, shares of Amtek Auto have fallen 71%.

In the wake of a likely default, bondholders can move court to attach collateral included in the agreement governing the bond issue, said a corporate lawyer.

“Technically speaking, the bondholders are secured lenders as companies usually place securities during any bond raising. In the event of a default, they can approach the courts and attach these securities for recovery,” said the lawyer on condition of anonymity.

Brickwork Ratings, the only rating agency that has a rating on the company’s credit facilities, said the facilities rated by them are not part of the Rs.800 crore in bonds due this month. The agency is monitoring the situation, said a representative of the rating agency.

On Friday, Standard and Poor’s withdrew its long-term corporate credit rating of Amtek Global Technologies Pte Ltd, the Singapore-based subsidiary of auto components maker Amtek Auto, citing “lack of sufficient information of sufficient quality” as the reason, the agency said in a statement.

(Ami Shah and Shally Seth Mohile contributed to this story)

Also Read: JP Morgan AMC to move Amtek Auto investments into separate units

Actis sells Teknicast to India’s Amtek

This article was first published on Livemint.com