The decisions of the BM Munjal-led Hero Group and the Mahindra & Mahindra Group — which have shown interest in buying a stake in Pipavav Defence and Offshore Engineering — hinge on the massive R12,000-loan recast package for the beleaguered firm being accepted by lenders. The corporate debt restructuring (CDR) cell is yet to okay the recast pending approvals from a few bankers, sources told FE.
While the restructuring package was earlier pegged at R7,500 crore, which is the amount the company owes banks, persons familiar with the proposal said Pipavav has sought additional assistance to the tune of R3,500-4,500 crore. The reluctance on the part of a couple of lenders to add to their exposure has delayed the decision, sources said. “Around 50% of CDR lenders have approved the recast but the rest are debating the huge additional exposure. They need to get the board approvals for further recasts,” a banker explained.
While a bankers’ consortium led by IDBI Bank has been pushing the company to look for a buyer, it appears that the business houses that have shown interest are waiting for the debt recast to be approved by banks. Bankers too believe that it’s unlikely a prospective acquirer would step in without more lenient repayment terms.
A banker present at the meetings to discuss the proposal told FE that even though the independent evaluation committee (IEC) that vets any recast above R500 crore felt the company’s operations could become viable, very few bankers had actually given a mandate or a formal consent, asking for time.
Pipavav, which had a net debt of R5,480.8 crore as of March 2014, posted an operating profit of R778.7 crore in FY14, leaving it with a net debt to Ebitda ratio of 7. In Q3 FY15, Pipavav reported a net loss of R70.2 crore on the back of R252 crore in revenues. Between FY11 and FY14, the firm’s interest costs rose nearly fourfold from R119 crore to R465.2 crore.
A lender who was part of the joint lenders forum that decided to recast the loan said that Pipavav had very few orders and was, therefore, unable to service its debt. “It had opted for capacity expansion but did not find new orders to utilise the capacity,” he explained.
The company is the latest entrant to the CDR cell from the shipbuilding sector after ABG Shipyard and Bharati Shipyard. While ABG’s restructuring package worth R11,000 crore is being implemented, Bharati Shipyard’s R3,500 crore in loans was bought out by Edelweiss Asset Reconstruction Company in July last year.