RBI unveils strategic debt restructuring’ scheme to convert debt into equity and also bring foreign promoters
GN Bureau | June 9, 2015
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.
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.
Nathuram Godse, who was brought up by his parents as a girl in the first few years of his life, has been reviled for decades for fatally shooting the apostle of peace Mahatma Gandhi. What Godse said during the Gandhi assassination trial has not been made public, giving rise to considerable speculation.
The first coal rake of NTPC’s Pakri-Barwadih coal mine at Hazaribagh was flagged-off by finance minister Arun Jaitley, Jharkhand chief minister Raghubar Das, union minister of state for power, coal, N&RE and mines Piyush Goyal, and minister of state for civil aviation Jayant Sinha, at Ranchi on
“Our corporator is missing,” reads a banner on a defunct lamppost in Shaniwar Peth – a densely populated area in Pune, the second largest city of Maharashtra after Mumbai. Many more sprang up in the nearby alleys, a couple of months before the municipal corporation polls on February 21.&n
On October 1 last year, Mehtab Alam Ansari, 30, who worked as a tailor in Delhi, had arrived in his village, Chepa Khurd in Barkagaon tehsil of Harazibagh district, to celebrate Eid with his family. That morning, he was nearing Dadi Kalan, a neighbouring village, to meet an acquaintance when he heard gunsh
Should Nathuram Godse`s statement in Gandhi assassination trial be disclosed?
Post-demonetisation, cash did the Houdini vanishing trick at ATMs. With currency notes playing hide and seek, life was sheer misery. Things improved a bit, but the situation is back to square one. The ATMs are running dry, yet again. Rajiv Bajaj, scion of the family that makes hugely popular