Ashok Leyland has increased its stake in bus maker Optare to more than 75 per cent to secure the company’s future.
India’s second-biggest commercial vehicle maker has taken a controlling share in the business, which recently opened a new £3m manufacturing plant in Sherburn in Elmet, after raising funds through a refinancing.
Optare, which has increased its order book from £24m in June to £59m in December, said it needed to review its banking facilities to meet the rise in orders and export.
It said it had not been able to secure the finance it needed through discussions with banks but had agreed a deal with Ashok Leyland giving it access to a £12m credit line in exchange for a 75.1 per cent stake in the company.
Ashok Leyland, which is part of the Hinduja Group, acquired a 26 per cent stake in Optare in July 2010.
Optare has conditionally raised £4m from the deal, which also gives it access to new banking facilities through Ashok Leyland. The deal is subject to shareholder approval at a general meeting scheduled for January 6, 2012.
However, the shares were issued to Ashok Leyland on Tuesday at 0.27p, compared to Monday’s closing price of 1.37p.
Optare warned that if the resolutions were not approved, the company would not have alternative means to finance its ongoing operations and would not be able to continue to trade. But it added it was confident an agreement would be reached.
In a statement, the board said: “The industry has been challenged by a lack of trade credit insurance. This, along with the increase in credit requirements and the higher levels of export and fleet business, which the directors expect to achieve, places considerable pressure on the company’s working capital position.”
Chief executive Jim Sumner added: “This is great news for Optare’s customers, employees and suppliers and secures stability and the long-term future of the business. The re-banking represents a defining moment in the company’s three-year turnaround plan which commenced in June 2009.”
The new 140,000 sq ft headquarters brings together operations, previously carried out in Rotherham, Crossgates in Leeds, and Blackburn, under one roof, with the potential to double manufacturing capacity to 1,200 buses a year.
The new site is both a manufacturing site and a warehouse. The bus shells are supplied by WEC Group, which is based at the same site, before roofs, glass, panels, seats and engines are installed at Optare and the bus is painted.
The vehicles then undergo final testing to comply with EU regulations before being driven to customers.
Mr Sumner hopes the new building, which opened in September, will be the ticket to global expansion. Exports currently account for a small per cent of its volumes but the figure is expected to rise to at least 25 per cent next year.
The company recently won an £18m contract to supply 190 buses in kit form to South Africa. It will supply the kits to its South African partner Busmark 2000 which will then produce the buses at a new plant in Cape Town.
In addition, Optare expects stronger UK demand for single deck buses in 2012 and 2013, to comply with legislation being introduced in 2014. It also hopes to secure further orders following the Government’s announcement of another round of ‘Green Bus Funding’ from April 2012.
The company has invested £4m in research and development over the last two years to create a new range of hybrid and electric buses.
Its Tempo SR product is the lightest bus, which Mr Sumner claimed is up to one-and-a-half tonnes lighter than any other bus in its class, improving its fuel consumption.
Optare currently makes three buses a day but plans to increase production over the next two years. The company employs 300 people on the site, primarily those who were transferred from Crossgates, but it hopes to create 100 new jobs in the next two years.
A declining order book led to Optare’s turnover falling 35 per cent to £52.3m in 2010. Loss before tax was £4.35m, falling from £5.13m.
Mr Sumner said the investment in the new site would help to turn around the firm’s financial performance. “These are challenging economic times and the winners are those who invest in the recession not those who invest when it is too late, “ he recently told the Yorkshire Post.