Pipavav Defence set to restructure Rs7,600 crore debt under CDR
The lenders will be formalizing the approval to the restructure at a CDR cell meeting on Thursday
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Mumbai: The majority of lenders to Pipavav Defence and Offshore Engineering Co. Ltd have agreed to restructure the company’s Rs.7,600 crore debt under the corporate debt restructuring (CDR) mechanism, two public sector bankers directly involved with the case confirmed on the condition of anonymity.
The lenders will be formalizing the approval to the restructure at a CDR cell meeting on Thursday.
Under the present norms for restructuring under CDR, 60% of the lenders by number and 75% of the lenders by loan value have to agree for a case to be approved for recast under the CDR cell.
After the CDR process, the overall exposure of the banking sector to India’s first private sector warship maker, is likely to go up to nearly Rs.12,000 crore as the lending consortium will be taking some additional exposure in form of fund-based and non-fund based exposure, while also funding interest payments which have been pending for nearly two years, the banker mentioned above said. Once approved, Pipavav Defence will be one of the largest cases to be restructured by the CDR cell recently.
A Bloomberg TV report on Wednesday had first reported that lenders to Pipavav Defence had given their nod to restructure Rs.12,000 crore worth of its debt.
Reliance Infrastructure Ltd, part of billionaire Anil Ambani’s Reliance Group, through its unit Reliance Defence Systems Pvt. Ltd, is to acquire 130 million equity shares, representing an 18% stake, from the promoters of Pipavav Defence at Rs.63 per share, Reliance Infrastructure had said in a statement on 4 March.
After the acquisition, Reliance Defence Systems will also make an open offer to acquire an additional 26% stake in the company from public shareholders at Rs.66 per share, the company statement had said.
“The equity infusion expected from the Reliance deal has not been taken into account when structuring this package. The focus was rather on the revival of the defence sector and the quality of the borrower. This is why banks have taken further exposures to the company,” said the second banker mentioned above.
The second banker also stated that while the funds from equity infusion by Reliance Infrastructure will bring down the overall exposure of the banking sector to the company, most of the funds are likely to be used in funding future projects at Pipavav Defence.
“This case was cleared soon at the CDR cell because bankers did not want to miss the 31 March deadline after which Reserve Bank’s forbearance for restructured assets will be removed,” he added.
According to the Reserve Bnak of India’s prudential guidelines on restructuring of debt, all loans restructured after 31 March will attract increased provisions, which could make the restructuring of such a large account unattractive to bankers. Currently, restructured assets are classified as standard restructured loans on the bank’s books and attract a 5% provision.
“This year, there have not been that many restructured assets because there are not enough viable cases on offer. Moreover, there is increased scrutiny of cases with large debt. Bankers are more comfortable to deal with unviable cases by treating them as non-performing rather than restructure them and delay the inevitable by two or three years,” said Abizer Diwanji, partner and national leader- financial services at consulting firm EY.
Pipavav Defence has India’s largest, and one of the world’s largest, dry docks, measuring 662m in length and 65m in width. A second dry dock measuring 750m in length and 60m in width is under development.
The warship maker has the capabilities to produce a wide range of naval vessels for defence, offshore assets, hydrocarbon vessels and commercial applications.
Pipavav Defence stock fell 1.3% to Rs.56.85 on BSE on Wednesday, while the exchange’s benchmark Sensex shed 0.18% to 28,111.83 points.
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