Lenders to Surana Industries have dropped a plan to initiate a strategic debt restructuring (SDR) scheme for the company with the proposal failing to be approved by a majority. The consortium had been looking to revive the loss-making and heavily indebted firm by converting a part of the outstanding loans into equity and thereafter trying to bring in a new promoter. However, bankers failed to reach a consensus on an SDR at the last joint lenders’ forum (JLF) meeting.
The disagreement between bankers arose from the fact that several of them had already classified the exposure as a non-performing asset (npa). As such, the ‘npa’ classification would have to be retained by these banks even if an SDR had been initiated. “On the other hand, if the promoter starts repaying the loans, the account can be regularised on the banks books and become a standard asset once again,” explained a banker.
“Major lenders like IDBI Bank, IFCI and Bank of India have not agreed to an SDR because they do not want the exposure to to remain an npa for 18 months,” a senior banker told FE.
Reserve Bank of India (RBI) rules require an account to retain the classification that it has on the reference date — the date on which the loans are converted into equity.
Two senior bankers told FE it was possible those lenders that have already classified Surana as an npa on their books might also prefer selling the exposure to an asset restruction company (ARC) rather than holding the shares of the company.
The company owed lenders R2,762 crore in FY14, higher by 22% over the previous year, Bloomberg data shows. In FY15, the company reported a loss of R263 crore after paying finance costs of R136 crore, on the back of R642 crore in net revenues. The company’s debt was restructured under the corporate debt rectructuring (CDR) mechanism in FY14 with repayments scheduled over 10 years till 2023.
Lenders, sources said, have told the company it should first start repaying its loans so that it can become a ‘standard’ account after which a debt-to-equity conversion could be considered. Among other lenders to Surana are Bank of Baroda, Punjab National Bank, Canara Bank, State Bank of India (SBI) and Syndicate Bank.
A proposal discussed at a JLF needs to be approved by 60% of the lenders by number and 75% by value for it to be implemenetd via a corrective action plan (CAP). Banks are typically willing to opt for an SDR since it allows them to classify the exposure as a ‘standard’ asset for a period of 18 months during which time they need to locate a buyer for the company.
Headed by Babu Srinivasan as its chairman and Dineshchand Surana as its managing director, Surana Industries is by promoted G R Surana, Shantilal Surana, Dineshchand Surana and Vijayraj Surana who individually own 11.40% of the company.
The SDR rules allow banks to convert debt at a price below the current market value or at an average of the closing prices during the ten trading days before a decision is taken at the JLF.They can own at least 51% of the equity of the company. On Friday, the Surana Industries stock closed at R6.9, up 3.14% from its previous close.
Following rules put out by RBI in June last year, bankers have decided to try out a restructuring for a handful companies including Electrosteel Steels, IVRCL, Jyoti Structures, Gammon India, Lanco Teesta Hydro Power, Monnet Ispat, Coastal Projects, Ankit Metals and Visa Steel among others. However, banks have not been able to usher in a new promoter at any of these firms although some deals are in the process of being negotiated.
Surana Power Ltd (SPL), Surana Mines and Minerals Ltd and Surana Green Power Ltd are three wholly-owned subsidiaries of the company. Surana Power is in the process of setting up of 2 x 210 MW thermal power plant at Raichur. The company’s FY15 annual report stated that although the original project cost was estimated at R2,400 crore in 2010, the project cost has been revised to R3,090 crore. Operations of SPL’s 35 MW thermal power plant were adversely affected, it said, due to fall in power tariff rates and increase in input costs. “Consequently, the debt under sole banking with UCO Bank was restructured,” it noted. In its annual report, the company blamed its liquidity crunch on account of negative market sentiments prevailing in steel industry. “This had been the major contributing factor for the company’s decision to utilise the CDR forum for restructuring its debts with consortium of bankers,” it explained.