Mumbai:Â Lenders to Patel Engineering Ltd have invoked the Scheme for Sustainable Structuring of Stressed Assets (S4A) to recast its debt.
According to the resolution plan, Patelâ€™s debt of Rs2,963.5 crore will be categorized into two partsâ€”Rs1,724 crore of sustainable and Rs1,239.5 crore of unsustainable debtâ€” the firm told stock exchanges on Saturday.
The unsustainable debt will then be converted into optionally convertible debentures (OCDs) with a coupon of 0.01% per annum payable annually, and yield to maturity (YTM) of 7% per annum with tenor of 10 years. This will be issued to the companyâ€™s lenders on a preferential/private placement basis.
The plan also includes the promoters of the firm infusing an additional Rs150 crore into the company in two tranches of Rs75 crore each.Â Lenders had already invoked another debt restructuring mechanism, strategic debt restructuring (SDR), by converting part of their loans into equity in November 2016.
On 5 May, Patel Engineeringâ€™s board approved transferring about Rs2,115 crore of its assets (mostly receivables stuck in arbitration) and an equal amount of its debt to a new entity in which the Eight Capital Group was to hold a 51% stake. Patel Engineering would hold the remaining.
MintÂ had first reported last month that Eight Capital, as part of its acquisition of a 51% stake in the new entity, has asked Patelâ€™s lenders to convert its debt into non-convertible debentures (NCDs) with a coupon of 0.01%. In turn, the special situations fund has offered to pay the lenders 7% interest every time Patel Engineeringâ€™s receivables get converted into cash.
â€śThe Rs2,115 crore of debt that Eight Capital is taking over, will roughly have a similar flavour to Patelâ€™s unsustainable debt under S4A,â€ť said a person aware of the matter.
The approval of Eight Capitalâ€™s offer is crucial to the implementation of S4A in the company. Thatâ€™s because S4A guidelines state that the sustainable part of the debt should be at least 50% of the total debt. The guidelines have further defined sustainable debt as that portion of the total debt that can be serviced even if future cash flows remain at current levels.
In the quarter ended 30 June, Patel Engineering had reported an earnings before interest, taxes, depreciation and amortization (Ebitda) of just Rs87.6 crore.
Experts, however, say that the resolution of Patel Engineeringâ€™s debt problems, thanks to quick and coordinated efforts by the lenders, promoters and the regulators, might not always be replicable in the burgeoning distress in the infrastructure sector.
â€śSeveral of the older construction companies will continue to need a lot of support from their lenders if they have to avoid liquidation,â€ť said Kuljit Singh, partner and industry leader (infrastructure) at EY.
On Monday, shares of Patel Engineering Ltd fell 1.54%, or Rs1.20, to Rs76.70 while the benchmark Sensex shed 0.84% to end the day at 33,033.56 points.