Mumbai: Eight Capital Advisory Services Pvt. Ltd, as part of its acquisition of a 51% stake in Patel Engineering Ltd, has asked the company’s lenders to convert its debt into non-convertible debentures (NCDs) with a coupon of 0.01%, two people familiar with the development said.
In turn, the special situations fund has offered to pay the lenders 7% interest every time Patel Engineering’s receivables get converted into cash, the two said on condition of anonymity.
“While Eight Capital’s offer is pretty unique, we are seriously considering it. In any case, the government has clearly taken a stance that it won’t unnecessarily challenge arbitration orders. Hence, we don’t expect much delays in Patel’s receivables getting monetized," one of the two, a senior banker at a public sector bank (PSB), said.
The second person said the proposal was a win-win for both the company and its lenders as it will alleviate the former’s debt servicing woes while ensuring the lenders don’t lose out on interest. “We expect the proposal to be approved soon," he added.
Eight Capital’s proposal comes almost five months after Patel Engineering’s board approved transferring Rs2,500 crore worth of its assets (mostly receivables stuck in arbitration) and an equal amount of its debt to a new entity in which the former will have a 51% stake. The remaining 49% will be held by Patel Engineering itself.
As per the term sheet, the deal is expected to be completed by early February, 2018.
Lenders to Patel Engineering had invoked Strategic Debt Restructuring (SDR) in the company in May 2016 in a rare instance of converting a company’s debt into equity even before the company could default on its debt obligations even once.
After the conversion, banks and financial institutions currently have a 51.9% stake in the company. Emails sent to Patel Engineering remained unanswered as of press time. Eight Capital refused to comment until after the transaction closes.