Banks plan to sell Electrotherm debt to ARCs to recover dues

After failing to implement a corporate debt restructuring (CDR) package in a debt-ridden Electrotherm, bankers are now looking to sell their exposures in the firm to asset restructuring companies (ARCs) in a bid to recover their money.

Two people in know of the development said at least six banks have put their exposures in the company on sale, either as a part of the consortium or outside it.

A source told FE that a 17-bank consortium led by Bank of India has an exposure of around R3,442 crore in the Ahmedabad-based company.

Lenders who have put the asset on the block in the last few months are: Bank of India, State Bank of India (SBI), Bank of Baroda, UCO Bank, Vijaya Bank and State Bank of Travancore (SBT). Among them, Bank of India has the highest exposure, R636 crore, as a combination of term loans and working capital loans.

Electromtherm?s FY14 annual report said Bank of Baroda sold its exposure to Edelweiss Asset Reconstruction Company (EARC) on March 26. Sources added that Bank of India has also exited its exposure after pulling out from the CDR mechanism. ?The remaining debts of banks like UCO, Vijaya, and SBT are stuck after the Central Bureau of Investigation (CBI) began its probe last month for allegedly cheating Central Bank of India,? said the head of an ARC who did not wish to be named.

The company?s CDR proposal was approved in February this year. However, as the package could not be implemented, the case was later withdrawn from CDR.

?There was a lack of consensus. Some banks were in the process to declare the company a wilful defaulter; others wanted to restructure and therefore the CDR was getting delayed,? said a banker who was part of the negotiations.

Electrotherm?s total debt stood at R3,108 crore in FY14, with short-term borrowings of R2,960.4 crore and long-term borrowings of R147.12 crore. For the three months to June, the company reported a R129.7-crore net loss on the back of R378.4-crore revenue.

Electrotherm?s annual report shows how lenders have tightened the screws on Electrotherm with UCO Bank declaring the company and its guarantors wilful defaulter.

This, however, was was challenged in the Gujarat High Court and is pending before it. SBT and the Central Bank of India have also issued letters to classify the company and its guarantors as wilful defaulter. With rising bad loans, banks have been quite active in selling off their NPAs to ARCs; close to R22,000 crore of such assets were sold in FY14.

However, after the recent guidelines issed by the Reserve Bank of India (RBI) that mandated 15% upfront payment by ARCs instead of the earlier 5%, over R20,000 crore of asset sales are on hold owing to tough price negotiations.