SBI Seeks To Resolve Rs 1 Lakh Crore In Stressed Cases By March
Ten large corporate accounts, with at least Rs 1 lakh crore in loans, are likely to face a final decision on whether their debt can be restructured before March 31. This, as the country’s largest lender, State Bank of India, tries to finalise resolution plans under the Reserve Bank of India’s June 7, 2019 circular.
A failure to decide on a resolution plan within 180 days from the signing of an inter-creditor agreement will mean higher provisioning unless the account is referred for insolvency.
According to two people in the know, SBI is currently in the process of finalising the resolution plan for the 10 largest cases where inter-creditor agreements were signed during the June-July period. For most of these accounts, the 180-day deadline ended in the first week of January.
The accounts include five companies from the Anil Ambani group, namely Reliance Infrastructure Ltd., Reliance Power Ltd., Reliance Home Finance Ltd., Reliance Commercial Finance Ltd. and Reliance Naval and Engineering. The Aban Group, Suzlon Energy Ltd, Soma Enterprise Ltd., Garden Silk Mills and Jindal India Thermal Power are the others currently under discussion for resolution or referral to insolvency.
Of these 10 accounts, lenders are considering insolvency proceedings for cases that have been through multiple rounds of debt restructuring already. In other cases, an attempt is being made to come to an agreement on a resolution plan.
An email sent to SBI last week remained unanswered. Emails sent to the 10 companies last Friday were also not answered.
Reliance Power’s promoters have assured bankers that they will either bring in equity of their own or find an external investor. The outstanding debt of the company stands at Rs 27,000 crore.
Since the company’s power projects are all functional and have power purchase agreements, lenders are confident that investors can be found. According to the first banker quoted above, if the lending consortium is not satisfied with the promoters’ efforts, lenders can take over the search for an investor. Already, the company has managed to restructure over Rs 2,000 crore debt associated with its Samalkot project with U.S. Exim bank, where the interest rate has been lowered and the repayment period has been extended to 2022.
At Reliance Infrastructure, debt of individual projects under the company is being resolved. The infrastructure arm of the Reliance Group operates multiple projects in the roads, power and transportation sector through special purpose vehicles.
The company, in September 2019, detailed an asset light strategy. For instance, on Jan. 7, the company said it had received in-principle approvals to conclude the sale of its Delhi-Agra toll road. Similarly, the debt restructuring proposal for the Mumbai Metro project, in which Reliance Infrastructure has 69 percent stake has been cleared.
Lenders, led by IDBI Bank Ltd, which have a Rs 9,000-crore exposure to Reliance Naval & Engineering, have been contemplating an insolvency petition against the borrower for some time. However, the consortium did not get requisite majority within the committee of creditors for this. Before the Anil Ambani-owned Reliance Group took over the company, Pipavav Defence and Offshore Engineering Company Ltd. had faced corporate debt restructuring owing to cash flow problems.
While Reliance Infrastructure owns 30 percent stake in the company, lenders are trying to resolve Reliance Naval separately, due to the high debt on the books of the company.
As restructuring attempts have failed, lenders will be left with no option other than insolvency in this case, the bankers quoted above said.
Reliance Home Finance & Reliance Commercial Finance
Discussions around a resolution plan for Reliance Home Finance and Reliance Commercial Finance are continuing. Both non-lenders went into default last year.
A recent forensic audit into the books of Reliance Home Finance found that while there were instances of related parties having financial transactions with the company, the auditor did not find any financial impropriety. Reliance Home Finance, in a stock exchange notification on Jan. 12, said the forensic audit didn’t have any adverse findings.
This allowed the lenders to give the group’s two non-bank lenders more time, and discussions on a resolution plan are ongoing, said the bankers quoted above.
In case of Suzlon Energy, lenders are hoping that a restructuring plan will emerge. While initial talks on bringing in capital into these companies have not been successful, negotiations are continuing. On Jan. 8, Suzlon Energy released a clarification to the stock exchanges, where it said that restructuring talks with lenders for Rs 12,000 crore in loans were continuing “constructively”.
The renewable power company had proposed to split its debt into sustainable and unsustainable portions. The plan also involves a substantial haircut for banks, which the lenders are not keen on, according to the people quoted above.
Lenders to Soma Enterprise, which has a debt of nearly Rs 4,000 crore, have been attempting to settle on a resolution plan since 2017. In the past, lenders have attempted to invoke the scheme for sustainable structuring of stressed assets (S4A) for this account. The attempt failed. Last year, the consortium of lenders tried to sell the company to prospective bidders. The process, however, has not yielded any responses.
As such, insolvency proceedings are a likely option, the people quoted above said.
Jindal Thermal Power
For Jindal India Thermal Power, which operates a 1,200-megawatt power plant in Odisha, lenders have been looking to resolve over Rs 6,000-crore stressed debt. Lenders had referred the account for insolvency in July 2018. However, the reference had to be withdrawn after the Supreme Court scrapped the RBI’s earlier stressed asset resolution framework.
Lenders will likely initiate a fresh insolvency application for the account, the people quoted above said.
Garden Silks and Aban Group
Decisions are pending in two cases — Garden Silks and Aban Group — where lenders are unclear about the path to follow.
Lenders have attempted resolution for Garden Silk Mills, which owns the iconic Garden Varelli sarees. However, attempts to sell the company to other bidders has not led to any resolution. Initial talks fell through after bidders offered a very low price for the company, implying a large haircut for lenders involved.
Similarly, lenders had looked at a one-time settlement plan with the promoters of Aban Group in 2018, which fell through. Central Bank of India had filed for an insolvency proceeding against the company in October 2019. Proceedings were withdrawn after the promoters, once again, offered to settle the debt. However, a settlement is still pending.
Additional Provisions Loom
According to the RBI’s June 7 circular, if a resolution plan is not implemented in a stressed asset within 180 days of signing an inter-creditor agreement, lenders will have to make additional provisions of 20 percent. After 365 days, the additional provisions against the stressed account is raised to 35 percent. This additional provisioning would be over and above the provisions which the lenders have already made against the account.
The only way to avoid the additional provision is by invoking insolvency proceedings against the company. A bank can write back half the additional provisions on reference and the rest after the case is admitted under the Insolvency and Bankruptcy Code.