Bankers to the highly-leveraged and loss-making Bhushan Steel have opted to lend a little over Rs 7,000 crore more to the firm rather than recast the company’s debt via the corporate debt restructuring (CDR) cell.
A joint lenders’ forum (JLF) — a platform where lenders decide on the course of action on exposure that is likely to become non-performing — has decided that it will allow Bhushan Steel to draw a line of credit of R7,000 that it had sanctioned earlier.
The steelmaker already owes banks approximately R35,000 crore and has reported losses for the last five quarters. In the three months to December 2014, it posted a loss of R454 crore on revenues of R2,345 crore.
One public sector banker explained to FE that the move had been prompted by worries of higher provisioning expenses that banks would need to make if the exposure is classified as ‘restructured’. “We estimate that upwards of 10% of the loan value will have to be provided for if we decide to restructure the loan,” the banker added.
The bigger worry is that banks would have had to take an NPV (net present value) hit. When a loan is restructured,
banks must provide for 100% of the sacrifice amount — the difference between the NPV of future interest income based on the current base prime lending rate (BPLR) and the lower interest charged (as part of the restructuring scheme) discounted by the current BPLR.
Post April 2015, Reserve Bank of India (RBI) rules require a restructured asset to be classified as non-performing. While restructured loans require to be provisioned for at 5% of the loan amount, non-performing assets have to provided for at 15%.
According to a hypothecation deed reviewed by FE dated March 2, 2015, Bhushan Steel had requested for additional working capital from a 23-bank consortium led by Punjab National Bank. Of these, nine have approved a loan amount of R7,000 crore while the remaining have approved the loan but are yet to sanction it. “We are in discussion with banks for realignment of the debt profile as per present RBI guidelines and there has not been any proposal for restructuring of debt pending with banks,” Nitin Johari, CFO, Bhushan Steel, said.
The consortium of lenders will soon meet to consider whether the exposure to Bhushan Steel can be refinanced under the 5:25 scheme. Under this term, loans provided to long-term infrastructure projects will be evaluated for refinancing every five years, ensuring viability of the projects and with the need for restructuring minimised.
The Delhi-based company has been in the spotlight since August 2014 when its vice-chairman and managing director was arrested in an alleged case of bribery involving Syndicate Bank. The company had later sought shareholder approval to raise $1 billion through securities..
Source: Financial Express
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