Why Did Bajaj Auto Take A Rs 5,250-Crore Loan Just Before KTM Funding Deadline?

KTM Insolvency: In an fresh attempt to avert bankruptcy, co-owner of KTM AG motorcycle manufacturer has successfully secured a Rs 5,245.6 crores one year-loan ahead of a deadline to raise funds for an insolvency plan for Austrian two-wheeler major. Bajaj Auto's European unit has agreed to the unsecured loan with JP Morgan Chase & Co., Citigroup Inc, and DBS Bank Ltd.

The funds have been earmarked for Bajaj Auto's investment purposes, as per an exchange filing that excluded the KTM label.

Meanwhile, the Austrian motorcycle producer's creditors have agreed to a 70 per cent haircut as part of a overall restructuring deal.

The troubled company has until May 23 to deposit Rs 4,896 crores with its insolvency administrator and pay out a 30 per cent quota to creditors.

On the other Citi has been advising the Swiss-listed Pierer Mobility, which is the parent firm of KTM, to secure new funding, which includes additional cash required to resume manufacturing. 

Is Bajaj Auto's Loan Linked To KTM's Insolvency Plan? 

In November 2024, KTM AG declared bankruptcy after struggling to navigate the volatile demand for its motorbikes during the Covid-19 pandemic, which led to excessive inventories. The company has been among the hardest hit amid financial difficulties in Austria’s industrial sector, which is constantly suffering as result of rising energy and labor costs that places thousands of jobs at risk.

On February 21, Bajaj auto poured 150 million euros in Baja Auto International Holdings. Of the 50 million euros was extended as a loan to KTM AG to reignite operation.

On March 17, KTM restarted manufacturing at its Mattighofen, Austria-based plant. Then, on March 31 and April 3, the motorcycle maker received two more tranches of 50 million euros each from Bajaj Auto International Holdings by way of convertible bonds.

On May 15, Bajaj Auto invested a further 125 million euros into Bajaj Auto International Holdings. Almost immediately, 50 million euros more was infused into KTM AG. In totality, Bajaj Auto has infused 200 million euros into KTM since the bankruptcy.

KTM needs a total of 800 million euros to finance the cash quota of 548 million euros and increase production. It’s still unclear whether Bajaj Auto will pick up a majority stake in KTM in lieu of the fund infusions or bring in an outside investor to buy out Stefan Pierre's share in the company.