Mumbai: The Tayal Group, the promoter of the erstwhile Bank of Rajasthan (BoR), has approached a group of 15 banks to recast a loan of around Rs 350 crore of its flagship firm KSL and Industries Ltd, after the textile company posted losses as a result of high raw material costs and slowing demand.
The Tayals, who have about Rs 700 crore (as per Friday’s share price) stuck in the form of frozen shares in ICICI Bank Ltd following the ICICI-BoR merger last year, is facing a financial crisis due to the poor performance of group firms primarily due to a slowdown in the Indian textile sector.
The case of the Tayals’ ICICI Bank shares, being considered by the Securities and Exchange Board of India (Sebi), hasn’t made much headway.
Pravin Kumar Tayal. HT
Though none of the group’s firms has defaulted yet, the group will be unable to service the loans if it fails to secure immediate funds or avail a loan-restructuring facility, according to senior officials of the group. They did not want to be identified citing the sensitivity of the matter.
According to these officials, the remaining group companies are also likely to approach banks for loan recasts to the tune of around Rs 2,700 crore. Major lenders to KSL are Bank of India and Andhra Bank.
“As of now, the group has begun discussions with a host of banks to restructure the loans of KSL and Industries Ltd. But given the poor cash flows and business losses, other group firms may also have to seek recast and this is likely in the next few weeks,” one of the officials said.
KSL has sought a 3-4% reduction in the interest rates and a moratorium of 12-18 months as part of the restructuring. A moratorium is a halt in repayment for a specific period.
None of the bankers Mint spoke to on Friday and Saturday were willing to comment for this story, saying the information wasn’t immediately available with them or that they couldn’t comment on individual clients.
The Rs 5,000 crore Tayal Group directly promotes Jaybharat Textile and Real Estate Ltd, Eskay K’n’IT (India) Ltd, KSL and Industries, Krishna Lifestyle Technologies Ltd, Asahi Fibres Ltd and Krishna Knitwear Technology Ltd.
According to the people cited above, the group has a total bank debt outstanding of around Rs 2,700 crore.
Analysts say the move to restructure loans of struggling textile firms rather than letting them turn bad is positive for banks.
“If they restructure, there is a possibility that they will get their money back on a possible revival in the sector,” said Hatim Broachwala, an analyst with brokerage Fortune Financials. According to Broachwala, textile continues to be a high-risk sector for banks.
A major chunk of the revenue of the Tayal Group comes from its textile business and the remaining from real estate.
In the face of a slowdown in the textile sector, many firms approached banks early this year to recast their loans. Banks have agreed in principle to restructure some of these loans on a case-by-case basis after assessing the cash flows of these companies, according to banking industry officials.
This, however, will not be a bailout as there is no infusion of cash and neither will banks take a haircut, or a reduced payment.
KSL made a loss of Rs 2.77 crore in the fiscal year ended March 2011, against a profit of Rs 5.27 crore in the previous year. Sales from income and operations, however, rose to Rs 1,759.08 crore from Rs 1,454.67 crore.
The Tayal group, headed by industrialist Pravin Kumar Tayal, hit the headlines last year following a Reserve Bank of India-driven merger of BoR and ICICI Bank. BoR shareholders received 25 ICICI Bank shares for every 118 shares they held.
Jaipur-based BoR, one of the oldest private sector banks in the country, was forced into the merger following a clampdown by Sebi and RBI for alleged irregularities last year. The merger, effective 13 August 2010, valued BoR at Rs 3,000 crore.
Accusing the promoters of alleged irregularities in share transactions, Sebi banned over 100 entities, including those owned and controlled by the Tayals, that received ICICI Bank shares, from trading in these stocks. Sebi’s order stated that the Tayals had indirect control of 100 different entities belonging to the Yadav Group and the Silvassa Group.
Sebi found that the Tayals had increased their stake in BoR, and many of the promoter entities had made fund transfers or share transfers through off-market deals to various other entities “in a deceptive and fraudulent manner with the active connivance of others”.
Also, the Tayal Group had falsely disclosed its shareholding in BoR as 28.61% at end-December 2009, while the promoters’ holding in the bank “had actually increased” and “stood at 55.01% as at quarter ending December 2009”, according to Sebi.
Post-merger, the Tayal Group entities would have received at least 9.7 million shares in their demat accounts. If the group was indeed holding a 55.01% stake in BoR, it would have received another 9.02 million ICICI Bank shares, which would have taken its total holding in ICICI to 18.32 million shares, valued at Rs 1,322.61 crore at Friday’s closing price of Rs 721.95.
According to the people quoted earlier, the Tayal Group was eager to get the shares unlocked to clear the debt.