Lanco Infratech’s debt recast package is likely to be approved by the corporate debt restructuring (CDR) cell when it meets next week, after the company agreed to significantly bring down the additional funds sought from banks as part of the restructuring.

The R7,500 crore recast package had been put on hold in the cell’s November meeting as bankers of the 27-bank consortium were not comfortable with sanctioning additional loans worth nearly R3,200 crore, which the company had asked for.

Lanco Infratech, the construction arm of the Lanco Group, need the funds to restart some of its operations, according to bankers. However, lead banker IDBI Bank and other lenders such as Punjab National Bank and Dena Bank had opposed this as they were not comfortable taking on additional exposure to the company. “We have reduced it (demand for additional funds) significantly and have decided to fund only those operations which are absolutely essential to get the company back on track. Though other lenders are still doing their own due diligence into the new plan, it is most likely to be approved,” said a senior official of a public sector bank which is part of the consortium.

Lanco Infratech reported a loss of R580 crore in the second quarter of this fiscal, with sales falling 23% y-o-y to R2,451 crore; in the first quarter, the loss reported was R579 crore.

With cash flows strained, consolidated net debt at the end of September had risen to a whopping R35,700 crore as its gearing hit 10X. One reason for this is the high receivables at close to R3,000 crore, some of it from state electricity boards such as Karnataka and UP.

Credit Suisse expects the company to post losses in both FY14 and FY15 and believes some power purchase agreements may have been wrongly priced. Under the circumstan-ces, although the CDR cell has called for details on why Lanco needs additional funds, it seems unlikely that banks will want to add to their exposure.

Lanco?s power plants have been starved for fuel. Both the Amarkantak-II and Kondapalli-II plants have been suffering, while the Udupi project operated at a load factor of 47% in the second quarter of the fiscal.

And although the company has been talking of asset sales for more than a year now, it has met with little success. Bankers in the know of developments expressed concern that unless the company is able to restore some balance to the gearing by bringing in equity, it might be risky for lenders to take on more exposure. The firm?s market capitalisation has come off from R3,395 crore a year ago to R1,594 crore now.

For a debt recast package to be approved, it must be agreed to by 60% of the lenders by number and 75% by the value of the exposure.