Mumbai: State Bank of India (SBI)—the lead banker in a lenders’ consortium to Bombay Rayon Fashions Ltd—plans to sell loans of Bank of India (BoI), Allahabad Bank and Karnataka Bank to an asset reconstruction company (ARC), said two bankers aware of the transaction.
One of the bankers cited above said the consortium has decided that the loans would be consolidated across lenders before selling it to an ARC. “SBI’s exposure is being sold to JM Financial ARC, other banks could also sell it to JM as one consolidated loan,” the banker said. The transaction will be handled by SBI’s Stressed Assets Resolution Group founded under its chairman Rajnish Kumar last October.
SBI and Bank of India did not respond to emails seeking comments. Allahabad Bank and Karnataka Bank couldn’t be reached for a comment.
Bankers have been trying to resolve their dues to Bombay Rayon, which posted net loss of ₹282 crore on revenue of ₹3,088 crore in the last financial year.
The second banker cited above confirmed that JM Financial ARC is acquiring loans of SBI. “We have given the mandate to SBI, the lead lender, and consolidating our loans and selling them to an ARC will lead to faster recovery,” the banker said, adding SBI Caps will handle the due diligence.
BoI has loans outstanding of ₹127 crore to Bombay Rayon, while Allahabad Bank and Karnataka Bank have exposures of ₹108 crore and ₹13 crore, respectively. Allahabad Bank and Karnataka Bank want to sell their loans for cash, while BoI is keen on a mix of cash and security receipts in the ratio of 90:10.
SBI said in a public notice on Saturday that Bombay Rayon’s assets will be sold off under the Swiss challenge method, under which an existing price offer can be matched or beaten by another offer.
Mint reported on 22 August that JM Financial Asset Reconstruction Co. (ARC) has offered to acquire SBI’s loan to Bombay Rayon’s in a ₹900 crore full-cash deal.
SBI has a ₹2,260 crore exposure to Bombay Rayon, meaning India’s largest bank will have to accept a 60% discount if it agrees to the deal.
SBI in its public notice said that the management fee would be 1.50% per year of net assets value at the lower end of the range of the NAV specified by the credit rating agency for first 3 years, 1.25% for the fourth and fifth year and 0.75% for the sixth year onward. “Excess recovery after redemption of security receipts i.e. upside, if any, will be shared by security receipts (SR) holders and ARC on 80:20 basis,” the notice said.
According to Bombay Rayon’s FY17 annual report, since the liquidity stress on the company increased during the year, lenders in their joint lender’s forum (JLF) meeting held on 7 October, 2016 agreed to consider the S4A scheme for the company. On 24 May 2017, the company entered into an agreement with the corporate debt restructuring lenders for their approval under Scheme of Sustainable Structuring of Stressed Assets (S4A), and unsustainable loans of Rs 2,249.74 crore was converted into equity shares and optionally convertible debentures.
Following conversion of debt into equity at the end of the June quarter, banks and financial institutions held 55.04% stake in Bombay Rayon. These included SBI’s 29.28% stake, Axis Bank’s 8.04% and Union Bank of India’s 3.35%.