Banks to take control of defaulting companies & change managements

RBI unveils strategic debt restructuring’ scheme to convert debt into equity and also bring foreign promoters

GN Bureau | June 9, 2015


#rbi   #RBI   #reserve bank of india   #banks   #default   #borrower  


In far-reaching and forward looking measure the Reserve Bank of India is going to allow banks to convert debt of defaulting companies into equity and bring about change in management of these companies.  Capital markets regulator Sebi has already relaxed the norms for banks to take over the ownership of such companies. Under the ‘Strategic debt restructuring’ scheme of the RBI the banks can also bring in foreign promoters with stake as low as 26%.

The notification: http://rbidocs.rbi.org.in/rdocs/notification/PDFs/SDRS62783F81DA523634E0D8AF43D088360A754.PDF

The central bank said that it has been observed that in many cases of restructuring of accounts, borrower companies are not able to come out of stress due to operational or managerial inefficiencies despite substantial sacrifices made by the lending banks.

Under such circumstances, the RBI felt, change of ownership will be a preferred option and the Joint Lenders' Forum (JLF) should actively consider such change in ownership.

As per the notification issued on Monday, "at the time of initial restructuring, the JLF must incorporate, in the terms and conditions attached to the restructured loans agreed with the borrower, an option to convert the entire loan (including unpaid interest), or part thereof, into shares in the company in the event the borrower is not able to achieve the viability milestones and/or adhere to 'critical conditions' as stipulated in the restructuring package."

As per the existing norms, it was allowed transferring equity of the company by promoters to the lenders to compensate for their sacrifices and transfer of the promoters' holdings to a security trustee or an escrow arrangement until the company turns around.

This was allowed with the objective to enable a change in management control if the lenders favour it. But direct stake pick-up was not allowed.

Now the RBI notification says that provisions of the SDR would be applicable to the accounts which have been restructured before the date of this circular provided that the necessary enabling clauses are included in the agreement between the banks and borrower.

The scheme
Post the conversion, all lenders under the JLF must collectively hold 51 per cent or more of the equity shares issued by the company, it said, adding, the share price for such conversion of debt into equity will be determined as per the defined formula.

The JLF must approve the SDR conversion package within 90 days from the date of deciding to undertake SDR.

The conversion of debt into equity as approved under the SDR should be completed within a period of 90 days from the date of approval of the SDR package by the JLF.

The JLF and lenders should divest their holdings in the equity of the company as soon as possible.

Comments

 

Other News

Indian team’s internet access to villages gets global recognition

 A successful effort to take high speed internet to over six lakh Indian villages by an IIT Bombay team failed to get support from the government. But, the same indigenous television white space technology developed by the team has now won Mozilla Corporation’s ‘equal rating innovation cha

DJB unveils Yamuna river project

Delhi Jal Board, in collaboration with University of Virginia on Thursday unveiled the Yamuna River Project with a symposium cum exhibition as a part of the overall effort to map out an expansive, multidisciplinary prescription to clean Yamuna. The discussion opened on the lines of eradicati

UJALA scheme: Over 22 crore LED bulbs distributed

  Over 22 crore LED bulbs have been distributed by Energy Efficiency Services Limited (EESL) under UJALA scheme, union minister Piyush Goyal informed the Lok Sabha.   The minister said that the National LED programme, called Unnat Jyoti by Affordable LEDs for

764 grossly polluting industries identified along Ganga river

  The Central Pollution Control Board (CPCB) has identified a total of 764 Grossly Polluting Industries (industry discharging more than pollution load of Biochemical Oxygen Demand 100kg per day) along the entire stretch of river Ganga and its tributaries, the Lok Sabha was informed.

196 dams in India are over 100-years old

  As many as 196 dams in India are over 100-years old, union minister Sanjeev Kumar Balyan informed the Lok Sabha.   The minister said that National Water Resource Council adopted National Water Policy 2012  on December 28, 2012. The policy mentions that

Law panel examining uniform civil code

  The government has requested the Law Commission of India to undertake examination of various issues relating to uniform civil code, the Lok Sabha was informed.   Union minister PP Chaudhary said that said that Article 44 of the Constitution relating to Dire

Video

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter