Bankers have cleared three loan refinancing proposals worth 25,000 crore under the 5/25 scheme — those of the financially-stressed Jaypee Infratech, Adani Power and Uttam Galva Metallics. The scheme is finally seeing some traction after the Reserve Bank of India (RBI) introduced it in August 2014 with some amendments in December.
Two senior executives of public sector banks close to the development told FE that while approvals for all three firms were more or less in place, sanction for Uttam Galva Metallics was in the final stages. FE reported on Monday that Adani Power’s refinance proposal had been okayed by consortium leader State Bank of India.
Jaypee Infratech — developer of the Yamuna Expressway project — is expected to get R10,300 crore refinanced while lenders to Adani Power’s two subsidiaries — Adani Power Maharashtra and Adani Power Rajasthan — have completed a R15,000-crore term loan refinancing.
For Uttam Galva Metallics, a subsidiary of Uttam Galva Steel, banks are expected to refinance R1,300 crore. Ankit Miglani, deputy managing director, Uttam Galva, denied reports of the refinancing while Jaypee Infratech and Adani Power did not respond to queries.
The 5/25 scheme makes it easier for companies to repay loans since the loan tenures are extended for up to 25 years with a fresh refinancing evaluated every five years.
However, the interest rate on the loan is typically raised since banks need to preserve the net present value.
Nevertheless, a refinancing works better for borrowers because they do not need to bring in fresh equity as they would need to in a corporate debt restructuring.
The benefit for banks is that they can avoid classifying such loans as non-performing assets (NPAs). From April 2015, the option of classifying a restructured assets as a standard loan is no longer available to banks, with the RBI having withdrawn the forbearance.
However, analysts at Crisil have cautioned such refinancing would mask the true picture of asset quality, warning that about 15% of these assets could slip into NPA territory over the longer term. They estimate R80,000 crore of assets could be refinanced under the scheme this year.
“We believe that the 5/25 scheme will replace the restructuring tool earlier available to banks especially for large loans. Restructured assets were visible in the reported numbers of banks. But now, the assets that will be part of the 5/25 scheme, they will not be necessarily be reported by banks and could get masked in the NPAs,” Crisil observed.
Bankers note that a large majority of the companies that are seeking refinancing under 5/25 are from the steel and power sectors. Five core sectors — infrastructure, iron and steel, textiles, aviation and mining — together contribute close to a quarter of the total advances of commercial banks, and account for around half of the stressed accounts.
The Gautam Adani-promoted Adani Power reported a 72% year-on-year drop in net profit to R715.05 crore in Q4FY15 despite an exceptional gain from the sale of the transmission business to a group company. The consolidated net loss for FY15 widened to R815.63 crore from a net loss of R290.55 crore in FY14 thanks to higher finance costs, which rose 31% to R5,202.99 crore.
Jaypee Infratech has a debt of close to R8,300 crore with a debt-equity ratio of 1.39. The company’s performance has been under pressure with net profit for 2013-14 crashing 132% to R293 crore and revenues virtually flat at R3,318.7 crore. For the first nine months of FY15, revenues fell 5% to R2,424 crore and profit by 10% to R259 crore.
Jaypee Infratech was incorporated on April 5, 2007, by parent company Jaypee Group as a special purpose vehicle (SPV) for the implementation, operation and maintenance of the 165-km, six-lane, access-controlled Yamuna Expressway connecting Noida and Agra. The SPV also undertakes the development of 6,175 acres at five locations along the expressway for commercial, industrial, institutional, residential and recreational purposes.
The group’s flagship company, Jaiprakash Associates, had a net debt of R27,267.9 crore at the end of FY14. In a concerted effort to reduce debt, the company sold two cement plants to UltraTech Cement for R5,400 crore in December 2014. Further, the company also offloaded two hydropower plants to JSW Energy for R9,700 crore. The JSW deal followed the collapse of talks with Abu Dhabi National Energy in July 2014 and with Reliance Power in September 2014.
Uttam Galva Metallics is promoted by Rajinder Miglani and family, co-promoters of Uttam Galva Steel. The plant is located in Wardha, Maharashtra, with a 0.55 million tonnes per annum pig iron unit along with a sister plant, a recovery type coke plant and a captive power plant. The company had requested expansion of the 0.55 mtpa plant to 1.5 mtpa in 2013. The total cost of the expansion project was pegged at R3,727.30 crore, according to a ministry of environment and forests letter dated September 2014. The company had been granted environmental clearance for it.