The consortium of 25 lenders to construction firm Hindustan Construction Company (HCC) might end up holding a stake smaller than 26% in the firm after implementing the scheme for sustainable structuring of stressed assets or S4A, a few bankers apprehend. Bankers will finalise the details of the R5,107-crore recast on Wednesday by which a portion of the unsustainable debt will be converted into equity. However,a statement by the company saying banks will hold 24.44% of the equity following the conversion is worrying some lenders. “A 26% stake would have given us the power to block a special resolution,” a banker observed.
Of the company’s total debt of R5,107 crore, R2,426 crore has been found to be “unsustainable”. Some part of this will be converted into equity and rest into optionally convertible debentures with a maturity of10 years. The promoters’ stake will fall to 27.44% from 36.07% currently. HCC will be the first company to get its debt restructured under S4A scheme.
A senior banker said the joint lenders’ forum (JLF) has to set a timeline for implementation of S4A and banks will have to issue margin guarantees to HCC against R3,200 crore where the arbitration awards were in favour of the company.
“The guarantees will be proportional to the money loaned by each bank of the consortium,” he said, adding that it should not take more than a month to implement S4A.
The banker added that a techno-economic viability study has found 52.5% of HCC debt to be sustainable. “The sustainable portion would have been higher if the company was able to get its receivables through arbitration. However, under the current guidelines, only current cash flows can be considered to calculate the sustainable debt,” he explained.
HCC reported a net loss of Rs 318 crore on revenues of Rs 8,768 crore in FY16. In July, the company had informed stock exchanges the JLF meeting held on July 12, 2016, had decided to resolve the account under S4A. Subsequently, however, bankers clarified that while they had agreed to look into the proposal, no conclusive decision had been taken at the meeting.
The S4A scheme has been viewed as an improvement over the strategic debt restructuring plan since it allows banks to retain the promoters whereas SDR envisaged bringing in a new set of promoters. The S4A scheme is more lenient to lenders since bankers may need to take an effective haircut of 50% if only half the debt is found to be sustainable.
The scheme, however, does not permit changes in the terms of either the moratorium or the payments of principal or the interest. Banks are permitted to convert the ‘unsustainable’ part of the debt into equity or redeemable cumulative optionally convertible preference shares. To be eligible for the scheme, the projects should have commenced commercial operations and the total exposure (including accrued interest should be more than Rs 500 crore. Moreover, lenders need to have provided for at least 20% of the total loans.