Mumbai: A stern interpretation by the Reserve Bank of India (RBI) of its contentious February 12 circular has stunned banks. The regulator has told banks to categorise a particular loan account as non-performing asset
(NPA) almost a year after the borrower’s debt was rejigged and the firm had received fresh capital infusion.
The company in question is Shree Renuka SugarsNSE -3.26 % which became a subsidiary of the Singapore-based Wilmar Sugar Holdings (WSH) in 2018 following what was billed as one of the largest foreign direct investment in the agriculture sector. But RBI in a letter to lending banks last week said that their loans should carry the NPA tag because a higher stake held by Wilmar now does not amount to a ‘change in management and ownership’.
Wilmar currently holds more than 58% in Renuka, India’s leading sugar company. Since Wilmar was a minority shareholder earlier, RBI is refusing to recognise a ‘change of ownership’ in Renuka even though the former CEO Narendra Murkumbi had resigned.
This is a technical, literal interpretation of the law,” a senior banker told ET. “Such a regulatory stance could stand in the way of debt resolution in other companies. For instance, hypothetically, if Etihad had raised its holding in Jet, (founder) Naresh Goyal moves out, and the company’s debt is restructured under a new scheme, will RBI still insist that is no change of management and the exposure is not a ‘standard loan account’ just because Etihad holds 24% now,” said another banker. Renuka has not defaulted after the loans were restructured.
According to RBI’s February 12 circular, credit facilities of borrowing entities may be upgraded as ‘standard’ (from NPA) after a change in ownership is implemented, either under the Insolvency & Bankruptcy Code (IBC) or under the debt restructuring framework outlined in the circular.
Wilmar held 38.57% stake in Shree Renuka Sugars as on March 2018. Following capital infusion and open offer, amounting to an investment of Rs 1,200 crore, Wilmar acquired majority control. Wilmar also gave a guarantee of Rs 2,700 crore as part of the debt resolution which was agreed in March 2018. Renuka Sugars’ standalone debt at the end of September 2019 was Rs 2,117 crore.
In a case where a debt-ridden company is classified as a ‘standard account’ following a change in management, banks have to ensure that among other things, the acquirer is not a person disqualified in terms of Section 29A of the Insolvency and Bankruptcy Code, 2016. This section bars defaulting promoters and ‘related persons’ from bidding for assets.
Wilmar, it may be mentioned, has a joint venture with the Adani group. “With the financial closing a week away, the timing of RBI’s letter has also upset banks. Banks which had written back the provision after the account was upgraded, will now have to provide for in the March 31 numbers,” said a source.
Renuka Sugars’ standalone revenue for the December quarter was Rs 1,093 crore, down 39% from the year-ago period. Boosted by forex gains, it posted a net profit of Rs 69 crore against a loss of Rs 2,294 crore last year. For the first nine months of FY19, its net loss was Rs 2,559 crore and revenue stood at Rs 4,731 crore. The debt restructuring helped reduce interest outflow in the first nine months by nearly 30%.
The company’s consolidated numbers (which are available annually and include its overseas operations) showed net sales of Rs 7,857 crore in FY18 (down 34%) and net loss of Rs 2,204 crore. On Friday, the stock closed at Rs 10.8, down 1.1% from the previous day’s close.