Mumbai: Lodha Developers Pvt. Ltd (LDPL) has bought 5 acres of prime land in Mumbai’s Jogeshwari suburb from Patel Engineering Ltd for Rs376 crore, two people familiar with the development said.
“The deal, which will be signed on Thursday, is part of the implementation of the Scheme for Sustainable Structuring of Stressed Assets (S4A) in the company," said one of the two people, a senior banker.
Interestingly, lenders to Patel Engineering are lending Lodha Rs325 crore to fund this land acquisition.
“The deal is basically a transfer of the debt that was secured by the land parcel to Lodha’s books from Patel Engineering’s books with the former putting in just Rs50 crore upfront. Given the attractive location of the land parcel and Lodha’s track record in monetizing such assets, lenders have even gone ahead and removed the pre-payment clause in the loan agreement," the second person said.
On 10 November, lenders to Patel Engineering had invoked S4A to recast its debt by categorizing its total debt into two parts—Rs1,724 crore of sustainable and Rs1,239.5 crore of unsustainable debt.
The unsustainable debt was then 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.
Earlier in 5 May, Patel Engineering’s board had 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.
Mint had first reported last month that Eight Capital, as part of its acquisition of a 51% stake in the new entity, had asked Patel’s lenders to convert its debt into non-convertible debentures (NCDs) with a coupon of 0.01%. In turn, the special situations fund had offered to pay the lenders 7% interest every time Patel Engineering’s receivables get converted into cash.
“The deal with Eight Capital was completed on 20 November and after the deal with LDPL is sealed on Thursday, the S4A will be implemented in Patel Engineering," the first person said.
The approval of the deal with Eight Capital was also crucial to the implementation of S4A in the company. That’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.
Post the implementation of S4A in Patel Engineering, it will become the first company wherein both the primary schemes floated by the RBI to tackle bad loans—Strategic Debt Restructuring (SDR) and S4A—have been implemented.
Last year, lenders to the company had invoked SDR and converted a part of its debt into equity. After the conversion, banks and financial institutions currently have a 51.9% stake in it.
Lodha Developers refused to comment. Patel Engineering is yet to comment on the story.