Mumbai, Jan. 21: Financial institutions and banks, led by the Industrial Development ank of India (IDBI), today hammered out a relief package for Essar Steel, Ispat Industries and Jindal Vijaynagar Steel (JVSL) which are saddled with Rs 20,500-crore outstanding loans.
Essar Steel and JVSL both owe Rs 6,000 crore each to the FIs while the Ispat group has outstandings of Rs 8,500crore.
The restructuring package, which has been agreed upon by the companies, consists of two parts: equity and debt.
While the first entails writing down 40 per cent of the companies’ existing equity, the latter includes conversion of 40 per cent of the outstanding loans into foreign currency loans at a fixed interest rate of 8 per cent. The balance 60 per cent debt would be charged an interest rate of 14 per cent having a tenure of 13 to 15 years.
While these companies have been asked to pledge 60 per cent of their shares with FIs and banks, holding of the latter will rise to close to 40 per cent (equivalent to promoters’ stake) post restructuring.
The FIs and banks that played a major role in this process are IDBI, ICICI Bank, IFCI and State Bank of India (SBI).
“The companies will write down 40 per cent of their existing equity by converting it into 0.01 per cent preference shares payable after the term loans are repaid in full over a period of 13-15 years,” said IDBI executive director A.K. Doda after the crucial corporate debt restructuring (CDR) meeting.
ICICI executive director S. Mukherjee said the package has been finalised after taking into account certain assumptions based on current steel prices and the likely scenario ahead. “It has also been based on their cash flows and debt service ability,” he added.
With a moratorium of two years, Doda said there was a minor write-off of liquidated damages (charging of additional interest rate) of about Rs 50-60 crore. The lenders have also asked the companies to pledge 60 per cent of their shares in demat form. They have also sought a personal/corporate guarantee from promoters for the restructured portion of the debt and also provided an exit option by allowing defaulters to prepay their loans.
Further, there is also a provision in the package whereby payment of dues by these companies will be accelerated if industry conditions improve. This will be monitored by an institutional committee on a quarterly basis and it will come up for review annually.
The companies’ cash flows will also be diverted into a Trust and Retention account to be maintained by a bank. Though Doda pointed out that the lenders are yet to identify the banks, sources said that it is likely to be the State Bank of India (SBI). The lenders have also asked the companies to quit non-core businesses by divesting stakes in order to ensure smooth cash flows.