Bankers Set To Approve Financial Restructuring For HCC’s Lavasa Project

Lavasa Corporation Ltd., the real estate development arm of Ajit Gulabchand’s Hindustan Construction Company Ltd. (HCC), is set to get lenders’ approval for a financial restructuring plan that has been under discussion for some time now.

A recent change in the joint lender forum (JLF) guidelines and Lavasa’s plan to enter the affordable housing segment are factors that are likely to allow the company to restructure nearly Rs 3,500 crore in debt under the Reserve Bank of India’s (RBI) ‘flexible structuring of long term loans’, two people familiar with the plan said on the condition of anonymity.

Earlier this month, the Reserve Bank of India (RBI) tweaked its JLF rules to say that a restructuring proposal can be implemented if cleared by 60 percent of lenders by value versus the earlier threshold of 75 percent. The change in rules is an attempt by the regulator to speed up the resolution of nearly Rs 10 lakh crore in stressed assets on the books of banks.

Lavasa’s plan had received the support of most lenders in the group, except two large public sector banks, said the first person quoted above who is a senior public sector banker. This meant that the approval within the JLF was stuck at 66 percent of bankers by value, short of reaching the 75 percent norm, the banker said while adding that the new threshold should allow the restructuring proposal to go through.

The decision of the majority of lenders would be binding on all banks in the consortium, as per RBI’s new rules. The new guidelines also say that bank boards will not be allowed to question the JLF’s decision.

While the change in JLF rules is not a game changer in itself, it could help in some cases, said Saswata Guha, director- financial institutions at Fitch Ratings India. Guha was not commenting on any specific account.

A second reason that Lavasa’s restructuring proposal may get pushed through is the company’s decision to get into the affordable housing segment. That, according to the second person quoted above, was part of the corrective action plan discussed between the company and the lenders earlier this year.

Lavasa was being funded by five-year loans from banks, which was leading to a mismatch, said the second person. Accessing long-term financing options was the only way out for the company, which it can do as a firm with infrastructure status, this person said.

Shift To Affordable Housing

The government gave affordable housing ‘infrastructure’ status in Budget 2017. It also tweaked the area requirements that qualify as affordable housing.

When contacted, Ajit Gulabchand, chairman and managing director of HCC declined to comment on the story. In an interview to BloombergQuint earlier this month, Gulabchand had confirmed that Lavasa will enter the affordable housing segment. He had added that debt restructuring talks were set to progress after a delay.

The next JLF meeting for the account is slated for Tuesday, the said the second person while adding that lenders will reconvene on the case for the first time since the RBI’s new norms were released. It is likely to be closed within a couple of weeks, this person said.

According to financial information available on Lavasa Corporation’s website, the company reported a loss of Rs 166 crore for the year ended March 31, 2017, as compared with a profit of Rs 269 crore in the previous year. The company reported total income worth Rs 609.5 crore for the year, a fall of 39 percent as compared with a year ago. HCC has been attempting an initial public offering (IPO) for Lavasa Corporation since November 2010, but has been unsuccessful so far.

Along with the Lavasa unit, the parent company HCC, too, is in the process of restructuring its loans under the Scheme For Sustainable Structuring of Stressed Assets (S4A). In November, the company informed stock exchanges that the RBI mandated overseeing committee has cleared the company’s restructuring plan under the scheme.