Stressed banks find themselves in a predicament of their own making. As deadlines to offload debt-converted-to-equity looms large on the radar, these banks, which have invoked Strategic Debt Restructuring, are finding it tough to find buyers for these assets. In the last fortnight or so, SBI took control of 29 per cent equity in troubled Rohit Ferro while the GOl Offshore board under the same SDR approved conversion of 74 per cent of debt to equity of the post issue capital of the company. On April 8, infrastructure major ABG Shipyard's board approved induction of a strategic investor. This is the second such attempt after the debt laden company failed in December 2015 to bring on board Germany-based Privinvest Holding for financial collaboration.
The company management says it has an order book of $2 billion and its December 2015 quarterly revenues are a pitiful Rs 2 crore showing the mismatch. The country's largest private sector shipbuilding firm had consolidated net debt as on March 31, 2015 totalling Rs 6,953 crore but total liabilities were upwards of Rs 11,000 crore. The company's FY15 debt-equity ratio was the highest at 5.63 since the last five years. In FY 2015, the company reported a loss at the operating level itself as the top line contracted miserably to Rs 450 crore from Rs 1,662 crore in the preceding year and Rs 2,524 crore in FY12- the highest revenue level in the last five years. For the December 2015 quarter, ABG Shipyard was under the cosh with the financials revealing a Rs 1043.72 crore operating loss and a net loss of Rs 1266.23 crore. The company clearly caught in a death spiral for the quarter ended December 31, 2015 reported standalone sales of Rs 2.00 crore, down -78.59 per cent from last quarter sales of Rs 9.34 crore and down -93.46 per cent from last year same quarter sales of Rs 30.56 crore.
The 22 bank consortium led by ICICI Bank and SBI is reported to have invoked the Strategic Debt Restructuring (SDR) provision on April 15. While it is believed that the banks are actively pursuing the possibility of a change of ownership and management of ABG Shipyard, they are making no real headway in the process. Another option that banks are exploring is to sell the assets of the shipyard to recover their money. The banks may well be taking all steps at protect their interest and maximise value of their exposures, but it is a zero sum game. Since March 2014, ABG Shipyard has been in the middle of a corporate debt restructuring (CDR) under which lenders led by SBI agreed to recast Rs 11,000 crore of loans, offering the firm a two-year hold on interest payment, reduced borrowing cost and extended the repayment period. Thus, ABG Shipyard, the largest private sector ship builder in India got a fresh lease of life with a 22-lender consortium clearing a Rs 11,000-crore corporate debt restructuring (CDR) proposal, which included a fresh working capital loan of Rs 1,800 crore.
This became the second largest CDR package in the history of India's banking sector. ABG’s CDR was one of the largest loan recasts undertaken in recent years by Indian banks, second only to the Rs 13,500 crore debt recast for engineering and construction firm Gammon India in July 2013. lenders to Gammon India invoked the SDR provision in November 2015. According to SDR norms issued by the Reserve Bank of India (RBI) in June 2015, banks can convert a part of a defaulting firm’s debt into majority equity and assume operational control. They will then have a 18 month window to find a buyer for at least 26 per cent of this equity.
The ABG Shipyard CDR package included a two-year moratorium on interest payment apart from a fresh working capital loan of Rs 1,800 crore. This is rescheduled for eight years now. The deeply ailing Surat-based shipbuilder, which moved the CDR cell last November, had a debt of Rs 11,000 crore on its books. This included Rs 2,000 crore of term loans, Rs 7,700 crore of working capital loans and Rs 1,800 crore of fresh working capital loan extended by the consortium led by ICICI Bank. According to banking sources, ICICI Bank, which leads the consortium of lenders, has around Rs 2,600 crore exposure to the company, followed by SBI (around Rs 1,600 crore). Other lenders include IDBI Bank (Rs 1,400 crore) PNB, BoB and Exim Bank (Rs 700 crore each).
Sources close to developments have stated that the Ministry of Defence has issued an advisory that none of its bids will be opened, which may well turn out to be a big setback for the company for it will be out of the race for various Indian Navy orders viz. landing platform docks (lPD), the order size of which is expected to be in the vicinity of Rs 6000 crore. While the construct of the SDR provision was to give banks more leeway to reconcile stressed assets, a mountain of which has piled up over the past few years, sadly it appears to be delaying the inevitable and giving companies breathing space. RBI Governor Raghuram Rajan in a first, instead of brushing elephants and camels under the carpet read the right act to the deeply distressed banks giving them till March 2017 to clean up their books by recognizing stressed assets and providing for them. Cronyism which included a massive bribe for loans scandal involving even bank chairmen and illicit practices of ever greening of NPAs has only accentuated the problem.