FIs to convert loans into equity in two more cos

FIs to convert loans into equity in two more cos

FIs to convert loans into equity in two more cos

MUMBAI, FEB 24: Two more companies have managed to reschedule their loans and remain out of the non-performing asset (NPA) list of financial institutions. In two classic cases of `evergreening' of NPA accounts in the name of debt restructuring, Flex Industries and Sanghi Polyester are on the loan revamp drive.

Similarly, Sanghi is converting overdue interest payments to financial institutions into equity. The company will also get part interest waiver while loan repayment will also be rescheduled. After the revamp package, the equity stake of institutions will go up to around 32 per cent. "It's to be seen whether FI stake in such companies will turn out to be dud investments. If history is to be repeated, this may turn out to be the case. What will be the return on this stake?" banking sources question.

Sanghi Polyester owes over Rs 400 crore to financial institutions. Both Sanghi and Flex projects had faced cost overruns. The FIs move to convert loans into equity has come after their earlier plan to change the management of several companies go stuck. "FIs were to bring in a promoter-management for Rajinder Steels and Rajinder Tubes one year ago. While Rs 600 crore of FI money is stuck in Rajinder, IDBI (the leader of FI consortium) was unable to bring a promoter. The company's plants are lying closed while the chairman is absconding," banking sourcres said.

Jindal Vijaynagar is another company which is facing a tough time to tackle huge borrowings. It has also initiated a revamp drive to bring down the annual interest burden of Rs 680 crore. Ispat Industries has availed debts to the extent of Rs 1,674 crore from various financial institutions. As per the FI clauses, this may be converted into security at par. In theory, if the institutions choose to convert their lending into security, the FIs will obtain a majority stake in the company. Arvind Mills which has defaulted over Rs 2,700 crore to banks and institutions is also on a restrucuring drive.

The government is also not far behind in facilitating the evergreening exercise as it has already decided to form a special corporate debt restructuring cell that will help in quick settlement of disputes relating to defaults on loans taken from banks and financial institutions. Indian Banks Association says the cell will deal only with defaults involving amounts over Rs 20 crore.

While non-performing assets (NPA) - or bad loans - of commercial banks have crossed the Rs 60,000 crore mark, financial institutions in the country have not lagged behind. NPAs of ten leading institutions (including IDBI, ICICI and IFCI) have reported a rise of 11.89%, or Rs 1,929 crore, to Rs 18,146 crore during the year ended March 2000 from Rs 16,217 crore last year.

According to the Reserve Bank's `Report on Trend and Progress of Banking in India', IDBI topped the NPA list by notching up bad loans worth Rs 7675 crore by March 2000. In fact, its NPA have gone up by Rs 1,185 crore from Rs 6,490 crore in the previous year. IFCI followed with NPA of Rs 4,103 crore, but it reported a fall of Rs 134 crore from the previous year's level of Rs 4,237 crore. ICICI's NPA went up to Rs 3,959 crore from Rs 3,623 crore in the previous year, as per the RBI figures.