Smaller companies appear to be particularly vulnerable
In an indication of the continuing stress among smaller firms in corporate India, lenders to Kolkata-based Concast Group have decided to allow eight of the group’s companies to restructure a total of R5,000 crore of borrowings via the corporate debt restructuring (CDR) cell. Sources privy to the development told FE the eight firms will be merged into one entity ahead of the recast.
Between April and December 2014, the CDR cell apporved R50,210 crore of recasts. That compares favourably with the R1.01 lakh crore restructured in FY14 and R78,000 crore in FY13, but bankers say many mid-sized and small companies are in trouble. In fact, between April and September, most requests for recasts came in from such firms; among these were Shriram EPC for an amount of R2,400 crore and JKC Projects, which was looking to restructure R1,630 crore.
In the December quarter, Loha Ispaat and Tulsyan NEC were looking for recasts for loans of R1,390 crore and R750 crore, respectively. In December alone the cell approved recasts worth close to R10,000 crore including that of Unity Infraprojects for an amount of R2,740 crore. But it’s not as though larger firms aren’t seeing financial stress as recently Pipavav Defence and Offshore Engineering approached the cell for more lenient repayment terms for a debt of R7,000 crore.
From April this year, any restructured asset must be classified as a non-performing asset following revised guidelines issued by the Reserve Bank of India (RBI). This would require banks to set aside a larger amount by way of provisions of 25% of the value of the asset; currently the provisioning is only 5% since the asset is categorised as a standard restructured asset. RK Bansal, chairman of the CDR cell, had told FE recently that he expects banks to approve more accounts by March end so as to avoid more NPAs.
Corporate debt restructuring is a mechanism that requires an approval by a super-majority of 75% of creditors (by value), which makes it binding on the remaining 25% to agree to the majority decision and covers only multiple banking accounts and consortium accounts with exposure of R10 crore and above.
The joint lenders’ forum (JLF) that met recently to decide on a corrective action plan (CAP) for the Concast Group decided to refer it to the CDR cell. The account is likely to be discussed in the cell’s meeting next week.
“It has been facing cashflow problems and was unable to service its debt of around R5,000 crore. The account had overdues of more than 60 days and we formed a JLF to decide chalk out a viable path for it,” said a banker present at the JLF meeting.
The group, which has a presence in diverse sectors from steel products to cement production and real estate, includes Corporate Ispat, Dankuni Steel, Concast Bengal Industries, Concast Exim, Concast Global, Concast Vyapaar, Surekha Exports and Concast Steel and Power. It is led by Sanjay Sureka as its chairman and managing director.
Concast Ispat, the group’s flagship company, has its manufacturing facility in Sodepur, West Bengal and is a producer of TMT bars and wire rods. It also produces finished steel products for the real estate and industrial sectors. The company had reported a profit of R10.6 crore in FY13 on the back of R1,138 crore of revenues in the same period.
Meanwhile, the Calcutta High Court in September last year had asked the group to convene a shareholders’ meeting regarding the amalgamation of all eight companies. Justice Biswanath Somadder of the court had written in his order last year, “At least 21 clear days before the date of the said meetings an advertisement convening the same and stating that copies of the said Scheme of Amalgamation and of the Statement required to be furnished.”
In 2011, Concast Group had acquired SPS Steel’s Jharsuguda-based steel plant for R800 crore and renamed the steel unit Concast Steel and Power after the takeover. After the RBI in January last year had published guidelines for early detection of stressed assets, banks have been forming JLFs to resolve stress in the accounts through restructuring or rectification.