Amtek another casualty of forex derivative swaps

Auto parts-maker Amtek Auto has joined a growing list of Indian companies that are sitting on notional losses on account of their exposure to foreign exchange derivatives. The company has informed that it could potentially make a loss of up to $18 million (Rs 72.18 crore) in the next two years on its exposure to currency hedges and swaps. A Rs 72-crore loss is 30 per cent of Amtek’s standalone net profits of Rs 236 crore on sales of Rs 1,196 crore during the year ended at the end of May 2007 (the company follows a June-to-May financial year). However, the promoters of the company have undertaken to bring in the matching amount to meet the obligation in the form of a 10-year, interest-free non-convertible debentures or preference shares.

About half a dozen other companies have also taken their banks to court alleging that they were sold exotic derivative contracts for speculative purposes. Earlier, software major Hexaware reported Rs 81-crore loss for the quarter ended December. Stationery maker Sundaram Multi Pap Ltd has sued ICICI Bank for its losses on forex derivatives. Coimbatore-based Rajshree Sugars and Chemicals have filed a case against Axis Bank. Sundaram Brake Linings is also involved in a legal dispute with Kotak Mahindra Bank. It is estimated that India Inc’s losses on account of their exposure to foreign exchange derivatives are at Rs 12,000 crore to Rs 20,000 crore. The losses may hog the headlines for the next few quarters as many of the currency swaps are likely to mature after March.