Asia MotorWorks lenders converting loans into equity via SDR

By: |
Mumbai | Updated: March 12, 2016 9:19:20 AM

Lenders to debt-ridden AMW Autocomponent, a 100% subsidiary of Asia MotorWorks Holdings, have started converting their loans into equity...

Introduced by RBI last year, the SDR scheme allows the lenders to a company to pick up a controlling stake in it by converting a part of the debt owed to them in to equity. (Source: AMW screenshot)Introduced by RBI last year, the SDR scheme allows the lenders to a company to pick up a controlling stake in it by converting a part of the debt owed to them in to equity. (Source: AMW screenshot)

Lenders to debt-ridden AMW Autocomponent, a 100% subsidiary of Asia MotorWorks Holdings, have started converting their loans into equity as per the Strategic Debt Restructuring (SDR) scheme, sources told FE.

While some banks have completed with the restructuring, others are in the process of doing so. State-owned Dena Bank is understood to have completed it on Friday and sources said around Rs 1.44 crore worth of loans to AMW Autocomponent was converted into equity.

“Given the small equity base of the company, this resulted in us picking up a stake of about 4%,” a Dena Bank official privy to the restructuring said on the conditions of anonymity. According to Reserve Bank of India (RBI) guidelines, for an unlisted company, the conversion price is determined by first arriving at a break-up value, which is the book value per share adjusted for cash flows.

Financial statements of the company with Registrar of Companies (RoC) show that in FY14, AMW Autocomponent had a share capital of Rs 23.8 crore and total debt of Rs 541 crore.

“By converting just about R25 crore of the debt, the consortium of banks will be able to pick up a 51% stake in the company and get control of it,” said the Dena Bank official.

On the issue of less than 5% debt being converted into 51% equity, Vibha Batra, Senior Vice President and Group Head, Financial Sector Rating, ICRA, said, “The idea behind SDR is not necessarily to reduce debt but give the control of the company to its lenders. But the very fact that lenders are able to take control of a company at a minuscule of its outstanding debt shows that its inherent value is pretty low. So, even if the banks manage to find a buyer for their stake, the amount they will garner from the sale will only be a similar minuscule of the debt owed to them.”

Introduced by RBI last year, the SDR scheme allows the lenders to a company to pick up a controlling stake in it by converting a part of the debt owed to them in to equity. But given the distressed state of the companies, experts feel the lenders need to take a huge haircut – estimates go as high as 85% – even if they successfully invoke SDR and manage to find a buyer.

Experts also fear that since the invocation of SDR will not be considered as restructuring as far as provisioning norms are concerned, banks will continue to make less provisions for such assets, thereby negating RBI’s balance sheet clean up drive for banks.

Earlier this year, Electrosteels Steel became the first company to be taken over by its lenders under SDR.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Moody’s retains ratings on SBI, IDBI; sees NPA woes stabilising
2Indian rupee extends gains for 3rd day, ends at 67.05
3Fitch sees banks’ NPA ratio improving to 10.9 per cent by March-end