Saturday 19 March 2016

STRATEGIC DEBT RESTRUCTURING

STRATEGIC DEBT RESTRUCTURING- AN INTRODUCTION
The concept of Strategic Debt Restructuring ("SDR") has been introduced by the Reserve Bank of India (the "RBI") in the SDR Scheme (the "Scheme") to help banks recover their loans by taking control of the distressed listed companies.
The Scheme has been enacted with a view to revive stressed companies and provide lending institutions with a way to initiate change of management in companies which fail to achieve the milestones under Corporate Debt Restructuring ("CDR").
The Scheme is subsequent to CDR or any other restructuring exercise undertaken by the companies.
ELIGIBILITY
Conversion of outstanding debts can be done by a consortium of lending institutions. Such a consortium is known as the Joint Lenders Forum ("JLF").
The JLF may include banks and other financial institutions such as NBFCs.
The Scheme will not be applicable to a single lender.
CONDITIONS
At the time of initial restructuring, the JLF must incorporate an option in the loan agreement to convert the entire or part of the loan including the unpaid interest into equity shares if the company fails to achieve the milestones and critical conditions stipulated in the restructuring package.
This option must be corroborated with a special resolution since the debt-equity swap will result in dilution of existing shareholders.
Such a mandate will result in the lenders acquiring a majority (51%) ownership.
"If the company fails to achieve the milestones stipulated in the restructuring package, the decision of invoking the SDR must be taken by the JLF within thirty (30) days of the review of the account during the restructuring.
The JLF must approve the debt to equity conversion under the Scheme within ninety (90) days of deciding to invoke the SDR.
The JLF will get a further ninety (90) days to actually convert the loan into shares.
WHAT HAPPENS AFTER THE DEBT-EQUITY SWAP?
On completion of conversion of debt to equity as approved under the Scheme, the JLF shall hold the existing asset status of the loan for another eighteen (18) months.
The JLF must divest their holdings in the equity of the Company. If the JLF decide to divest their stake to another Promoter, the loan will be upgraded to 'Standard'. The 'new promoter' should not be a person/entity from the existing promoter/promoter group. However, the quantum of provisions held by the bank as on the date of the divestment will not be reversed.
PRICING
The conversion price of the equity shall be determined as follows:
Conversion of outstanding debt into equity will be treated at a 'Fair Value' which will not exceed the lowest of :
Market value, average of the closing prices during the 10 day average price in the market.
Book value per share to be calculated from the company's latest audited balance sheet without considering revaluation resources.
In any case, the price cannot be lower than the face value of the share.
OPEN OFFER? OR NOT?
The pricing formula stated above has been exempted from the Securities and Exchange Board of India (SEBI) (Issue of Capital and Disclosure Requirements) Regulations, 2009.
Further, the acquiring lender on account of conversion of debt into equity will be exempted from making an open offer under Regulation 3 and Regulation 4 of the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Banks invoked SDR on alloy maker Rohit Ferro-Tech Ltd., IVRCL Ltd, Gammon India Ltd, Monnet Ispat and Energy, Electrosteel Steels Ltd, VISA Steel, Lanco Teesta Hydropower Ltd and Jyoti Structures Ltd and Ankit Metal and Power Ltd till date.


Anil Aggarwal
Owner & Manager at Anil Aggarwal Coaching
(A proprietorship concern for IBPS exam guidance and Bank Interview preparation)
 Mobile:                               +91 9811340788
E-mail ID:         anilakshita@yahoo.co.in
Office: Flat #49, Trilok Apartments, Patparganj, I.P. Extension, Delhi-110092.

Follow us at:


No comments:

Post a Comment