The RBI on Monday unveiled the much-talked-about "strategic debt restructuring" scheme which paves the way for banks to trigger a change in management of chronically defaulting companies. New norms announced by the RBI allowing banks to convert debt of defaulting companies into equity also include provisions to bring in foreign promoters with stake as low as 26%.
The guidelines allow banks to use a formula for pricing under the RBI rule and effect the conversion at a price based on the reference date—the day at which lenders decide to originally restructure the loan. Recently market regulator Sebi had allowed such pricing of shares only if it was under the RBI rules. The latest directive from the RBI allows banks to bring in strategic international investors in a sector which has a cap on foreign direct investment. The new RBI guidelines will help banks avoid a "Kingfisher-type situation" where banks were compelled by the old Sebi pricing formula to convert loans at a 60% premium to market value although the airline was on a crash course.
Shares of some defaulting companies such as Bhushan Steel and Gitanjali Gems closed higher on Monday following the norms. While Bhushan Steel was up 18%, Gitanjali rose by 7%.
Banks will also not have to worry about holding more than 20% stake as the norms exempt them from maintaining investor-associate relationship. Equity shares acquired under these norms are also exempt from mark-to-market rules for 18 months and banks need not make provisions if the market price falls.
"In many cases of restructuring of accounts, borrower companies are unable to come out of stress due to managerial inefficiencies despite substantial sacrifices by lending banks. In such cases, change of ownership will be a preferred option," the central bank said.
To facilitate a change of ownership, the RBI has said that while restructuring loans, lenders should jointly incorporate in the restructuring agreement an option to convert the debt to equity if the borrower is not able to achieve the viability milestones or adhere to the critical conditions in the agreement. If such a clause has already been incorporated, banks can apply the provisions of the latest circular to earlier defaults as well. (Times of India)
|
