Construction company Hindustan Construction Company (HCC) on 5 November 2016 became India’s first firm to get Reserve Bank of India's (RBI) approval for debt recast under Scheme for Sustainable Structuring of Stressed Assets (S4A).
The RBI-mandated Overseeing Committee (OC) under the S4A approved HCC’s 5107 crore rupees debt recast that was passed by ICICI Bank-led joint lender forum in September 2016.
Highlights of the Debt Recast of HCC
• Under this debt recast of HCC, 52 percent of the debt was found to be sustainable and can be serviced as per original terms and conditions including interest rate and tenure.
• Out of the remaining 48 percent debt, 1000 crore rupees debt will be converted into equity for banks, which could eventually give them 25 percent stake in the company’s post-scheme equity capital.
• The balance of 1400 crore rupees will be converted into Optionally Convertible Debentures for 10 years with a coupon rate of 0.01 percent.
• The share price will be determined as per SEBI guidelines and debt will go down to the extent of the conversion amount.
• These measures will now go for approval from HCC’s shareholders.
About Scheme for Sustainable Structuring of Stressed Assets (S4A)
• The S4A scheme was launched by RBI to resolve the corporate debt problem and strengthen the lenders’ ability to deal with stressed assets.
• Under this scheme, a company’s debt is bifurcated into two parts sustainable and unsustainable based on the cash flows of the company’s project.
• The sustainable debt cannot be less than 50 percent of existing debt and will have to be serviced over the same terms as that of existing facilities.
• The unsustainable debt can be converted into equity, Optionally Convertible Debentures or Redeemable Optionally Convertible Preference Share with clearly spelt out terms.
• Banks can sell this stake or equity to a new owner who will have the advantage of getting to run the business with a more manageable debt.
• Under this scheme, RBI also constituted advisory body called Overseeing Committee (OC) to review the resolution plans submitted by the Banks.
When: 5 November 2016