Rs 700-cr debt recast of 3 firms failed in October

By: | Published: December 5, 2015 12:13 AM

Debt recasts of three companies worth Rs 700 crore through corporate debt restructuring (CDR) failed in October, taking the total package failures for the first seven months of the current fiscal at Rs 20,003 crore.

Debt recasts of three companies worth Rs 700 crore through corporate debt restructuring (CDR) failed in October, taking the total package failures for the first seven months of the current fiscal at Rs 20,003 crore.

According to sources, construction company PBA Infra, with a debt of around Rs 220 crore, exited the CDR cell in October on account of package failure. Lenders said the company exited as promoters were unable to bring in equity as envisaged in the master restructuring agreement (MRA). Moreover, the company could not meet earnings projections, as it was yet to get lot of receivables from EPC projects, sources said.

Details of the two other companies were not available.

“Promoters were granted two installments to bring in the equity. Although, the first upfront payment came, the second installment did not and the package failed,” a banker said.

The Mumbai-based company is promoted by the Wadhawan family, which includes Ramlal Wadhawan (31.52%), Balkrishan Wadhawan (5.94%), Subhashchandra Pritamlal Wadhawan (4.47%), among others. It is led by Ramlal Wadhawan as its chairman and managing director.

Viney Kumar, chairman of the CDR cell, said the cell reviews whether companies are able to meet the annual financial projections. “If the performance exceeds the projections by 25% or more, the company is identified for a successful exit,” he explained, adding that if it fails to meet the projections, the package fails.

In the first six months of FY15, failed exits stood at R17,062 crore in 23 accounts, according to CDR cell data.

Bankers said one of the main reasons for loan restructurings not working out is inability of promoters to infuse the requisite equity capital into the company in the defined period, along with delay in repaying the loan after moratorium. Packages also fail if the company is unable to sell its non-core assets.

Last year, four companies, whose total debt obligations of Rs 14,000 crore had been restructured to enable them to repay loans, exited CDR.

Gr2

Once the asset is out of the CDR fold, banks have the option of leaving either writing it off or keeping it on their books as a non-performing asset (NPA). They can also sell the loan to an asset reconstruction company (ARC) as they did with Bharti Shipyard (Rs 5,800 crore) and Hotel Leelaventure (Rs 3,000 crore).

The RBI allowed lenders to classify restructured accounts under the restructured-standard category till March 2015. However, from April, banks have been instructed to classify restructured accounts as NPAs, and given the continued financial strain across corporate India, the NPA portfolios of some lenders could grow bigger.

The CDR cell, which has been inundated with requests for loan recasts in the last couple of years, has not received any recast requests so far in FY16. In FY15, the cell approved 54 cases worth Rs 72,560 crore. Lenders approach the CDR to provide some relief under stress by means of reducing the rate of interest being paid and also offering a 2-3 year moratorium on interest payment.

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