Lenders to Jindal Steel and Power (JSPL) are looking to initiate steps under the scheme for sustainable structuring of stressed assets (S4A), senior bankers told FE, reports Shayan Ghosh in Mumbai. As a first step, the techno-economic viability (TEV) study and a forensic audit have been commissioned.
JSPL’s consolidated gross debt amounts to R46,816 crore and it reported a net loss of R1,999 crore on R18,412 crore in revenues in FY16. In Q1FY 17, its net loss stood at R1,240 crore on revenues of R4,655 crore. The company’s interest expenses rose 26% to R3,280 crore in FY16. Part of the $18-billion OP Jindal Group, JSPL is present in the steel, power, mining and infrastructure sectors.
According to a banker, the recast could be feasible because lenders have already extended the repayment period of loans under the Reserve Bank of India’s (RBI) 5/25 norms, easing some stress.
Lenders to JSPL include State Bank of India, Punjab National Bank, ICICI Bank, IDBI Bank, Axis Bank, HDFC Bank and Canara Bank.
A JSPL spokesperson said that the company has been in a continuous dialogue with all its banking partners on various avenues and options for debt restructuring. “JSPL continually engages with its lenders about the possible ways for capital restructuring and achieving efficient capital structure,” the spokesperson added.
An S4A plan requires the current cash flows of a company to be sufficient to service at least half the total borrowings.
Meanwhile, lenders had approached the RBI via the Indian Banks’ Association (IBA) seeking some elbow room while deciding on the repayment schedule and on a lower sustainable debt criteria. However, the RBI has not accepted their demands.
The S4A scheme has been viewed as an improvement over the strategic debt restructuring (SDR) plan since it allows banks to retain the promoters whereas the SDR envisaged bringing in a new set of promoters. While banks have initiated an SDR for more than a dozen firms, they have been unable to rope in new promoters for even one company. Many of these exposures have been classified as non-performing assets (NPAs).
The S4A is a more lenient scheme towards lenders because the sustainable debt needs to be not less than 50% of the total debt implying a haircut of 50% or less. The scheme, however, does not permit changes in either the moratorium or the payment terms for either the principal or the interest. Banks are permitted to covert the “unsustainable” part of the debt into equity or redeemable cumulative optionally convertible preference shares (CRPS). 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.
While the sum of bad loans in the banking system stood at Rs 6.7 lakh crore at the end of September 2016, the loans recast by the corporate debt restructuring cell stood at Rs 4 lakh crore. Lenders are estimated to have restructured loans over Rs 1 lakh crore via the SDR scheme. Meanwhile, in the Financial Stability Report released in June, the RBI has observed gross NPAs could touch 9.3% in FY17 in a severe stress scenario and 8.5% in the baseline scenario from 7.6% in March 2016.