Monnet Ispat’s lenders restart stake sale process

Bankers, who converted Rs350 crore debt into a 51% stake under SDR norms in August 2015, are hopeful of getting bidders for Monnet Ispat this time around


The Monnet Ispat case is indicative of a broader issue with resolution of bad loans, which are now coming back into focus after the demonetisation process ended on 30 December.
The Monnet Ispat case is indicative of a broader issue with resolution of bad loans, which are now coming back into focus after the demonetisation process ended on 30 December.

Mumbai: Lenders to Monnet Ispat and Energy Ltd have restarted the process of selling a majority stake in the company, according to an advertisement posted by SBI Capital Markets on its website.

This is not the first time that the investment bank is searching for buyers since lenders invoked strategic debt restructuring (SDR) norms in August 2015.

At that time, lenders converted a debt worth Rs350 crore to a 51% stake. Monnet Ispat had a total debt of around Rs9,000 crore as on 31 March.

“The bankers are still hopeful of finding bidders for the company. But companies in the steel and power sectors will always find it difficult to sell,” said a senior public sector banker aware of the matter, seeking anonymity.

The Monnet Ispat case is indicative of a broader issue with resolution of bad loans, which are now coming back into focus after the demonetisation process ended on 30 December. Gross non-performing assets were at Rs6.7 trillion as on 30 September.

Even though bankers have tried many available options including SDR, the scheme for strategic structuring of stressed assets (S4A) and 5/25 long-term refinancing, the results have been discouraging so far. Moreover, the underlying businesses (where loans turned bad) have also not received the restructuring necessary to become sustainable.

SDR allows creditors to convert debt into equity and take over the management of defaulting companies. Under S4A, banks can convert up to 50% of a company’s loans into equity or equity-like instruments.

“We had asked the Reserve Bank of India (RBI) to adjust some clauses in the way S4A scheme is drafted, but they are yet to consider it. We don’t think that there is any need to force fit a case to adhere to S4A and then not be able to do anything constructive. Banks had tried to do that in SDR and it didn’t lead to much,” said the head of a large state-owned lender, also speaking on condition of anonymity.

The central bank has tweaked all these schemes in recent times. In November, the regulator allowed banks to classify the sustainable part of a case under S4A as a standard asset, reducing the provisioning required. Even in 5/25 refinancing, the RBI allowed banks to consider this scheme for sectors other than infrastructure and for projects worth Rs250 crore.

Months after these changes, bankers are yet to take full charge of the situation and take any major calls.

“There are senior banker-level meetings happening at the Indian Banks’ Association and decisions are being considered. By March, bankers would have reached a decision on which scheme to choose or take a haircut,” said the first banker quoted above.

“Even if you were to see the most optimistic business scenarios for stressed companies in the iron and steel sector, their ability to fully service their large debt would still be suspect. As of now the strategy seems to be that banks want to delay the pain as much as possible and hope for things to turn around, so that they do not have to take large haircuts,” said Abhishek Bhattacharya, director and co-head-financial sector ratings at India Ratings & Research Pvt. Ltd.

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