1. Investors misread Arshiya CDR exit notice, stock soars 20%

Investors misread Arshiya CDR exit notice, stock soars 20%

Logistics firm Arshiya, which on Tuesday informed stock exchanges that it has exited the corporate debt restructuring (CDR) scheme, saw its stock surge 20% to Rs 51.15.

By: | Mumbai | Published: January 6, 2016 1:13 AM
Two senior public sector bankers explained that Arshiya's exit from CDR had not  been a “successful” one.

Two senior public sector bankers explained that Arshiya’s exit from CDR had not been a “successful” one.

Logistics firm Arshiya, which on Tuesday informed stock exchanges that it has exited the corporate debt restructuring (CDR) scheme, saw its stock surge 20% to Rs 51.15. However, lenders to the company confirmed to FE that the Arshiya account had actually been  withdrawn from CDR because the recast had “failed” following the inability of promoters to meet certain conditions.

The notice on the Bombay Stock Exchange (BSE) read: “Arshiya Ltd has informed BSE that the company is in receipt of a letter dated December 29, 2015, from the corporate debt restructuring cell, informing the exit of Arshiya Limited from corporate debt restructuring scheme.”

Two senior public sector bankers explained that Arshiya’s exit from CDR had not  been a “successful” one. On the contrary, they said the debt restructuring had failed following the company’s inability to comply with certain terms.

“The company did not meet the CDR norms, including one that necessitated bringing in promoters’ contribution,” a banker said.

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The firm’s gross debt at the end of March 2015 was Rs 1,549 crore. In Q2FY16, the company posted a net loss of Rs 62 crore on the back of Rs 17 crore in revenues. The Mumbai-based company is promoted by its joint managing director Archana Mittal (63.11%) and group chairman and managing director Ajay S Mittal (11.88%).

Trading volumes in Arshiya shares soared on Tuesday, with 8.71 lakh shares changing hands as against an average volume of 74,000 shares in the last two weeks on the BSE. An email sent to the company seeking comments remained unanswered.

While successful exits from the CDR occur when a firm’s financial performance surpasses projections by 25% or more, the package fails if the projections are not met. Once the asset is out of the CDR fold, banks have the option of either writing it off or keeping it on their books as a non-performing asset (NPA). They can also sell the loan to an asset reconstruction company (ARC) as happened in the case of Bharti Shipyard (Rs 5,800 crore) and Hotel Leelaventure (Rs 3,000 crore).

Among the main reasons for debt recasts not working out are the inability of promoters to infuse the requisite equity capital into the company in the defined period and a delay in repayments post the moratorium. The restructuring schemes also often fail because promoters are unable to sell non-core assets to mobilise resources as promised.
One of the bankers FE spoke to felt the company should have clarified that it had not made a successful exit but a ‘failed’ one. In May last year, lenders to Arshiya, including State Bank of India (SBI) and its subsidiaries, sold their loans to Edelweiss Asset Reconstruction Company. In 2013, the company had sought to recast Rs 1,000 crore and the CDR cell approved the recast in its June 24 meeting.

FE had recently reported that non-performing assets for a clutch of banks are set to rise by close to Rs 3,000 crore in Q3FY16 solely on account of six failures in the CDR cell. While the debt recast package worth Rs 700 failed in October, loans of Rs 2,300 crore failed in November, taking the total value of failures for the first eight months of FY16 to Rs 22,303 crore.

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