Private sector lender IDFC Bank has put up for sale loans worth R4,000 crore to Essar Power, Unitech and Ruchi Soya to asset reconstruction companies (ARCs), sources aware of the development told FE. Some of these loans were part of the bank’s legacy accounts and are being resolved on a priority basis, they added.
While Essar Power owes R1,400 crore, Unitech and Ruchi Soya owe R300 crore each. According to a source, although the bank has approached ARCs around 10 days back, pricing of loans still remain a challenge. “While banks have put on sale loans worth R15,000 crore, buyer interest is muted because banks are not eager to lower their reserve prices,” he said.
The company’s power business has eight operational power plants in India and one operational power plant in Algoma, Canada, with a total installed generation capacity of 4,705 MW and is increasing to 6,100 MW, according to its website.
Essar Power executive vice-chairman Sushil Maroo had told Bloomberg last year that the company is seeking to sell stakes in some domestic power plants to help reduce more than R20,000 crore of debt. The company’s problems began when the Supreme Court cancelled most coal mine permits in 2014.
Meanwhile, Ruchi Soya has been engaged in a legal battle with IDFC Bank which had filed a winding up petition in the Bombay High Court. Last month, the court had dismissed the petition citing sincere attempt by the company to revive itself which would benefit a large number of its lenders. Following the dismissal of its petition, the bank has now decided to sell the account to ARCs. In a recent regulatory filing, Ruchi Soya had said that it has been served with a copy of Insolvency and Bankruptcy Application, filed by one of its unsecured creditors before the National Company Law Tribunal (NCLT), Bombay for recovery of around R9.63 crore.
Close to one-third of loans sold to asset reconstruction companies (ARCs) in FY16 originated from public sector banks (PSBs), compared to 90% in the previous year. Around 75% of loans sold in FY16 were primarily from public banks, but was lower than 90% of loans sold in FY2015.
While lenders put up R1.3 lakh crore of loans on sale in FY16, only R20,000 crore loans were bought by ARCs and on an average success rates have started to come to 18-20% from 40-45% earlier.
A Kotak Institutional Equities report had pointed out that ARCs were moving beyond liquidating assets and taking fees on NPAs sold and are actively looking to build talent for turning around these assets and offer consultancy services wherever required. The valuation tussle between the lenders and ARCs began in August, 2014 when the Reserve Bank of India (RBI) mandated upfront investment of 15% in security receipts (SRs) from 5% earlier to ensure ARCs have ‘more skin in the game’.