Monnet Ispat Energy Limited to restructure loans

Lenders to Monnet Ispat and Energy Ltd have restarted the process of selling a
majority stake in the company, according to an advertisement posted by SBI Capital
Markets on its website.
This is not the first time that the investment bank is searching for buyers since lenders
invoked strategic debt restructuring (SDR) norms in August 2015.
At that time, lenders converted a debt worth Rs350 crore to a 51% stake. Monnet Ispat
had a total debt of around Rs9,000 crore as on 31 March.
“The bankers are still hopeful of finding bidders for the company. But companies in
the steel and power sectors will always find it difficult to sell," said a senior public
sector banker aware of the matter, seeking anonymity.
The Monnet Ispat case is indicative of a broader issue with resolution of bad loans,
which are now coming back into focus after the demonetization process ended on 30
December. Gross non-performing assets were at Rs6.7 trillion as on 30 September.
Even though bankers have tried many available options including SDR, the scheme
for strategic structuring of stressed assets (S4A) and 5/25 long-term refinancing, the
results have been discouraging so far. Moreover, the underlying businesses (where
loans turned bad) have also not received the restructuring necessary to become
sustainable.
SDR allows creditors to convert debt into equity and take over the management of
defaulting companies. Under S4A, banks can convert up to 50% of a company’s loans
into equity or equity-like instruments
Reserve Bank of India (RBI) to adjust some clauses in the way S4A scheme is drafted,
but they are yet to consider it. We don’t think that there is any need to force fit a case
to adhere to S4A and then not be able to do anything constructive. Banks had tried to
do that in SDR and it didn’t lead to much," said the head of a large state-owned
lender, also speaking on condition of anonymity.
The central bank has tweaked all these schemes in recent times. In November, the
regulator allowed banks to classify the sustainable part of a case under S4A as a
standard asset, reducing the provisioning required. Even in 5/25 refinancing, the RBI
allowed banks to consider this scheme for sectors other than infrastructure and for
projects worth Rs250 crore.
Months after these changes, bankers are yet to take full charge of the situation and
take any major calls.
“There are senior banker-level meetings happening at the Indian Banks’ Association
and decisions are being considered. By March, bankers would have reached a decision
on which scheme to choose or take a haircut," said the first banker quoted above.
“Even if you were to see the most optimistic business scenarios for stressed
companies in the iron and steel sector, their ability to fully service their large debt
would still be suspect. As of now the strategy seems to be that banks want to delay the
pain as much as possible and hope for things to turn around, so that they do not have
to take large haircuts," said Abhishek Bhattacharya, director and co-head-financial
sector ratings at India Ratings & Research Pvt. Ltd.