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.
In an interview with Governance Now, Anil Kumar Jha, special DGP, CID, Assam, who is also nodal officer for the CCTNS project, speaks of what the system in its present form has helped his state achieve. What is the current status of CCTNS in Assam and its outcome?
A stand-off between the ministry of home affairs (MHA) and software development firm Wipro seems to have long held up the Rs 2,000 crore crime and criminal tracking network and systems (CCTNS) project, conceptualised ten years ago. The project aims to digitise and connect all police stations in the country
Questioning the development model pushed ahead for profit oriented growth, social and political activists, academicians, financial analysts and civil society organisations are holding a three day confluence of Peoples’ Convention on Infrastructure Financing in Mumbai. &nb
About one-fourth of India’s elderly face abuse at the hands of those they trust the most – the son (52%) followed by the daughter in law (34%),spouse/partner (14%), daughter(6%) grandchild (6%), son in law(3%), parent(1%) and care giver(1%), reveals a report by the HelpAge Ind
The official statistics provided by the department of industrial policy and promotion (DIPP) under the ministry of commerce and industry shows that between January 2000 and December 2017, India received $368 billion of foreign direct investment (FDI). It also says that Mauritius was the source of $125 bill
The declaration communicated through the director general of military operations (DGMO) of Pakistan and India on May 29, 2018, to implement the ceasefire agreement of 2003 between the two countries in “letter and spirit” has opened up an opportunity to restore peace in the disturbed Kashm