Anticipating a further deterioration in the financials of Patel Engineering, lenders to the company are understood to have decided to implement strategic debt restructuring (SDR) scheme, senior bankers confirmed to FE. At a recent meeting, bankers unanimously agreed to convert a portion of their loans of an estimated Rs 5,000 crore into equity.
Meanwhile, the company said in a statement on Wednesday, it had failed to make interest payments for three non-convertible debenture issues of Rs 350 crore due in March.
“It’s just a matter of time before the firm defaults,” a senior banker from a state-owned lender which is a member of the consortium, said on the condition of anonymity. He added the company’s promoters have given their consent to the restructuring.
The company has so far been servicing its loans on time and the exposure is treated as a ‘standard’ asset on banks’ books. However, bankers apprehend things could take a turn for the worse. In Q4FY16, the company posted a stand-alone loss of Rs 36.6 crore, while in Q3FY16 it had reported a profit of only Rs 3.1 crore compared to a profit of Rs 10.1crore in Q2FY16. In FY 15, the company made a stand-alone profit of Rs 11.9 crore and a consolidated profit of Rs 8.5 crore. “Although Patel Engineering is a standard asset, the JLF believes it might be possible to find a buyer,” a banker said adding that initiating an SDR would allow banks to classify the asset as a standard asset and not incur fresh provisioning.
Patel Engineering is stuck in several government projects and its receivables are high, as a consequence of which cash flows have dried up, bankers explained. The consortium, he said, is optimistic about finding a buyer for the integrated infrastructure and construction services company founded in 1949. According to the firm’s Annual Report for 2014-15,the debt has more than doubled in a matter of five years; the company’s consolidated debt stood debt at Rs 4,789.8 crore in March, 2015. During the same period, the net profit had slumped more than 90% to just Rs 8.5 crore.
ICICI Bank is the lead banker of the consortium of lenders to Patel Engineering, which includes, among others, Bank of India, Union Bank of India, Axis Bank and Bank of Baroda. An e-mails sent to Patel Engineering for comments solicited no reply till the time of going to press. Bankers expect the process would be completed by the end of June.
Introduced by the Reserve Bank of India (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. So far, SDRs have been implemented in cases where companies have not their dues even after the exposure has turned into a non-performing account(NPA). Lenders are now trying to initiate an SDR even for accounts that have not yet turned non-performing. Electrosteel Steels was the first company to be taken over by its lenders under the SDR scheme.