State Bank of India (SBI) is looking to buy out Canara Bank’s loans of about ₹4 billion in Ratnagiri Gas and Power Pvt. Ltd (), the erstwhile Dabhol Power Co., said two people in the know. This is expected to be the first resolution under the inter-creditor agreement (ICA), which is part of the government’s Project Sashakt aimed at resolving bad loans. The step by SBI follows Canara Bank moving the National Company Law Tribunal (NCLT) in September against the demerger and debt restructuring of Ratnagiri Gas.
IDBI Bank Ltd is the lead lender of the consortium, but its lending activities are restricted under the Reserve Bank of India’s (RBI’s) prompt corrective action (PCA) framework, said one of the people cited above. “SBI, which has the second-highest exposure to Ratnagiri Gas, is discussing buying out Canara Bank’s stake under ICA to complete the resolution,” he said, adding the plan has yet to be finalized.
The second person said PwC has tasked with valuing Ratnagiri Gas and is expected to submit its report soon. “The liquidation value of the company will be used as a reference point for the purchase,” he said. This person said SBI’s plan will be sent to the Indian Banks’ Association (IBA) for approval of the overseeing committee. An IBA official said they have not received any proposal from SBI.
Under the ICA, the lead lender has the right to arrange for buyout of the loans of the dissenting lenders at a value equal to 85% of the lower of liquidation value. SBI and Canara Bank did not respond to emails. A PwC spokesperson said: “We do not comment on company-specific topics.” Canara Bank moved NCLT months after a debt recast plan and demerger was approved for Ratnagiri Gas. However, the petition was rejected as non-maintainable.
The resolution plan involves demerger and a deep restructuring of debt. Ratnagiri Gas’s liquefied natural gas regasification plant has been demerged into its subsidiary, Konkan LNG Pvt. Ltd (KLPL), while loans of the power plant were restructured by lenders. The demerger of the LNG business of Ratnagiri Gas into KLPL was approved by the NCLAT (National Company Law Appellate Tribunal) in March 2018. Mint reported on 28 September that Canara Bank has been advised by its auditor to seek resolution under the Insolvency and Bankruptcy Code and to classify these companies as non-performing.
The debt restructuring proposal included bifurcation of existing loans of ₹90 billion into Ratnagiri Gas and its subsidiary KLPL. Around ₹52 billion of loans to the power plant was then divided into sustainable (₹20 billion) and unsustainable debt (₹32 billion) with the latter being converted into cumulative redeemable preference shares (CRPS). The sustainable loan was given a very long repayment schedule and interest rates were reduced from 13% to 9%. Meanwhile, KLPL was given additional loans of ₹12 billion to build a breakwater facility.
