Beleaguered realty lender Altico Capital, which is in the process of finalising a viable resolution plan after it defaulted on interest payments in September 2019, may not immediately take the Insolvency and Bankruptcy Code (IBC) route.
Reports which came soon after the resolution avenue under the IBC was opened for financial firms, had put Altico among the top probables.
“There was, at no point, a plan to go with the IBC. With lenders evaluating various plans submitted by shareholders and outside investors, it (IBC) was not an option,” a source familiar with the development tells ET Prime.
There was temporary hiccup in the course to recovery after interim CEO Sanjeev Agrawal had to step down following the row over his compensation. The upfront payment of over INR5 crore is under the process of getting repatriated.
Following this, Altico has now elevated three of its department heads – Dhruv Jain, chief financial officer; Amit Pachisia, chief credit officer; and Sonal Shah, chief HR officer – as managing directors. Santosh Parab, the general counsel, has also been designated as a managing director.
Even as the search for a new CEO is on and an external agency has been mandated with the task, the current arrangement is likely to carry on for next couple of weeks, till the realty-focused lender freezes the resolution plan.
Clearly, the new year starts with hectic parleys for Altico and its multiple stakeholders.
Sources clarify that the designation (of managing director) accorded to these executives is more of a rank and does not come with the legal trappings as defined under the Companies Act and other regulations. “It is more of a rank as seen in some investment banks,” the source says.
However, the role of the management is largely curtailed, with the steering committee led by the State Bank of India and assisted by SBI Capital Markets, which meets every week, largely taking the calls. The Altico management is communicated the instructions given by the steering committee, which it executes.
Altico executives declined to comment.
The tale of competing plans
One of the recent calls of the committee was to express displeasure over the competing plans presented by principal shareholders of Altico. Clearwater Capital, rechristened as Fiera, and Abu Dhabi Investment Council (ADIC), which together control over three-fourth of the equity, had submitted a proposal, which the Altico board also approved.
However, Varde Partners, which owns 22%, presented a separate resolution plan. The RBI and Altico lenders are said to have reprimanded Varde for acting as a new investor for the purposes of debt resolution. Some industry sources suggest that Varde’s plans to explore the alternate investment-fund route for distressed assets might have taken its focus off the NBFC. And, it might be looking for an exit.
Varde was ultimately told to join the resolution plan of Clearwater and ADIC, which jointly control 78%.
The Clearwater (Fiera) and ADIC proposal had clauses that did not go down well with the lenders and the RBI, sources add. Fiera and ADIC, which have control on Altico’s board, have put up a resolution proposal without any additional investment for nearly six years. But it involves monetisation of assets.
On the other hand, Varde Partners, which owns around 20% in Altico, has put up a competing proposal to bring in around USD150 million (INR1,000 crore). This would require the lenders to cough up an equal contribution. Varde’s plan would not involve any asset monetisation and take seven years.
The proposal
The Clearwater plan also contained an option to consider restructuring under a recent circular by the RBI. Under the circular issued on June 7, 2019, the RBI had allowed lenders to consider restructuring plan if a new promoter acquires a company.
Sources say the Clearwater-ADIC plan approved suggested an option wherein Clearwater, which currently owns 44%, to take over another 5% shareholding from ADIC.
This stake, which was to be transferred for a nominal consideration, would give Clearwater a new-promoter tag. The move would have enabled banks to restructure the debt without taking any provisioning if a new promoter acquires the company as per the RBI circular dated June 7.
However, lenders felt this would have been against the letter and spirit of the RBI move, as it would amount to allowing defaulting promoters to change shareholding within themselves, thereby defeating the intended purpose of the circular.
The idea behind the RBI circular is to bring in a new promoter with the financial and operational wherewithal to take over a defaulting company in order to repay existing lenders in the future, thus qualifying as a true change in control.
While Clearwater’s initial plan was to rejig the shareholding without bringing in new equity into Altico, it is understood that following reservations expressed by the regulator and lenders, it was agreed upon to bring in a nominal equity of INR150 crore. However, this is well short of a meaningful commitment of INR500 crore to INR1,000 crore that the company needs to complete its projects.
There is another reservation around the plan brought in by existing promoters, as the banks are unlikely to lend in future to those who carry the tag of defaulters. Meanwhile, in a filing on December 31, Altico said an interim pro-rata cash distribution would be made to all lenders based on their outstanding on the date of default (September 12, 2019).
The way ahead
The RBI and current Altico lenders are likely to pursue outside options rather than face the likelihood of the company defaulting again in a few months’ time if the control vests with same set of shareholders, sources in the know tell ET Prime.
Therefore, Altico’s lenders, led by SBI Capital Markets acting as the resolution agent, have called for final binding bids from interested investors, including Cerebrus and SSG, by January 15.
A binding bid would mean the proposal/offer has a clearance from the investment committee of the investing entity. Reports have since said that some suitors such as Apollo and Kotak are no longer interested. Meanwhile, lenders have separately told Altico’s shareholders to put in more equity (INR500 crore-INR1,000 crore) for their proposal to be considered.
The two-week period between January 15 and 30 is when the final contours of Altico’s new structure and course will emerge. Meanwhile, Altico’s liquidity position is comfortable with enough to meet four to five months’ liabilities.
(Graphics by Mohammad Arshad)
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