ABG Shipyard gets record Rs 10,600-crore lifeline

Written by Vishwanath Nair | Mumbai | Updated: Jan 25 2014, 02:45am hrs
Lenders have approved a Rs 10,600-crore loan recast for ABG Shipyard in what is one of the biggest cases of corporate debt restructuring. In addition, the company is understood to have asked for loans of Rs 1,800 crore, which is likely to accepted by banks. Of this, Rs 1,200 crore is in the form of non-fund exposure, Rs 300 crore as a term loan and Rs 300 crore in the form cash credit.

While the paperwork is expected to be completed on Friday, three-fourths of the 22-lender consortium have agreed to the restructuring, sources in the know of the development told FE. The firms contribution to the restructuring package will be a mere R300 crore as promoters equity while banks are expected to take a hit of R1,000 crore. Under Reserve Bank of India (RBI) rules, promoters must furnish a personal guarantee.

Interestingly, the firms net debt at the end of FY13 was just Rs 4,350 crore, as reported in its balance sheet. But ABG, which posted a piffling R1.3 crore as net profit in the three months to September, owes banks a whopping R12,640 crore, including interest. Much of the exposure that lenders have is non-fund based including guarantees, bankers explained.

It reported a total income of just R374.2 crore in the second quarter of FY14, down 35% year-on-year. Total income in FY13 fell to R2,091.15 crore from R2,472 crore in FY12 while net profit halved to R96 crore from R190 crore.

The shipbuilding company will get a three-year moratorium on interest payments and a seven-year repayment period for the restructured debt loan.

The ABG recast was referred to the corporate debt restructuring (CDR) cell in the October-December period, which saw record referrals of Rs 45,000 crore. The CDR cell, a forum of bankers that takes a call on individual debt recast packages, has seen a spike in the number of cases referred to it, resulting in a steep rise in stressed assets in the banking system.

In its financial stability report (FSR) released on Monday, the RBI raised serious concerns on the rising quantum of restructured loans. As on September 30, the average stressed asset ratio the ratio of gross non-performing assets (NPAs) and restructured advances to total assets stood at 10.2% for the banking system, with state-owned banks accounting for the bigger share. This is much higher than the 9.2% recorded on March 31.

The central bank estimates loans worth a combined Rs 3.25 lakh crore have so far been restructured through the CDR cell and bilaterally. Concerns have emerged regarding the large and growing quantum of forborne assets and their potential impact on the asset quality of banks, the central bank said in the FSR.

Whats worrying bankers is that a big chunk of the recast amount, or about Rs 30,000 crore, could go bad given cash flows of companies are severely strained. Some bankers believe that the slippage into NPAs could turn out to be even higher; till last year, the slippage has been roughly 15%.