Lenders to Altico Capital are working on a rescue plan for the non-banking financial company (NBFC) that envisages buying ₹1,600 crore of builder loans and adjusting it against future debt repayments, said two people aware of the development.
According to the first person quoted above, these are standard loans on books of Altico and are spread across seven real estate projects. He said the plan is to buy these loans and use 65% of it to cancel Altico’s debt obligations. The remaining 35%, the first person said, will either be pooled into a separate account or paid to Altico in cash.
“Banks are wary about this plan because of the presence of certain unutilized credit limits extended by Altico to these builders and are not too keen to extend those after taking over these loans," said the person quoted above.
The Reserve Bank of India (RBI) perceives commercial real estate exposure by banks as riskier than other loans. It has therefore mandated banks to set aside more money as standard asset provisions between 0.75-1% for these loans. For most other loans, banks have to typically set aside 0.4% of a loan as provisions.
For Altico Capital, among the non-banks affected by the liquidity crisis that began in 2018, approval of such a plan could lead to improvement in its repayment capacity.
Its troubles started when it missed an interest payment to Dubai-based Mashreq Bank on 12 September.
Following the default, rating agency CARE Ratings downgraded Altico Capital. For its resolution, Altico is working with lenders alongside turnaround advisory firm Alvarez and Marsal.
The second person said that while Altico had received term sheets from potential investors for these seven projects last year, lenders wanted the right of first refusal to evaluate these.
“Depending on whether lenders approve the proposal (to buy ₹1,600 crore of loans) Altico would then reach out to these investors. While the earlier term sheets were non-binding, these investors have not indicated any reluctance in revisiting the offers," said the second person.
The troubled real estate lender reported a net loss of ₹368.12 crore during April to September 2019. In the same period of 2018, the company reported a net profit of ₹160.47 crore.
Following the default on interest payments, Altico has received loan recall notices amounting to ₹2,218.13 crore from various lenders, Altico said in November last year. As of 30 September, the company’s outstanding debt stood at ₹4,370 crore.
The second person said that Altico has repaid ₹250 crore to lenders in December and its loan will not be classified as non-performing in Q3 FY20 by banks. However, he added that only one large public sector bank has tagged the company’s loanas NPA owing to a delay in repayment.
The non-bank is currently in the process of a debt resolution plan, looking to monetize its assets to repay the debt. A Bloomberg report on 2 January said that Apollo Global Management LLC and Varde Partners LP are no longer considering bidding for Altico. The firms, Bloomberg said, pulled out because they were unwilling to meet creditor demands to inject as much as ₹2,000 crore of fresh equity into Altico.