GMR Infrastructure, one of the largest infrastructure companies with major interests in energy and roads, has agreed to adopt a lenders-driven debt restructuring exercise for a subsidiary, under which loans lent by banks will be converted into equity.
The move is considered significant as it indicates the seriousness of Indian banks to go ahead with restructuring and sale of stressed assets where lenders expect limited results from existing promoters.
Under the Strategic Debt Restructuring (SDR) plan, GMR Rajahmundry Energy on Friday issued equity shares proportionately to all lenders, effectively giving banks majority stake of 55%, while the remaining 45% is retained by parent GMR.
In a statement, GMR said the move was taken as the absence of long-term fuel supply agreements (FSA) and power purchase agreements (PPA), prompted the consortium of lenders to adopt the SDR. The SDR was stipulated by the Reserve Bank of India (RBI) in June last as a means for banks to convert loans into equity in extreme cases of defaults.
This would be one of the major SDR exercise in a large Indian company. Electrosteel Steels was earlier put under SDR, but was later taken out due to non-fulfilment of covenants.
Large Indian power companies have found it difficult to service loans, as the absence of fuel pacts, which typically assured coal supplies, and the lack of electricity offtake agreements with parties agreeing to buy the power, make such projects unviable.
Under the SDR for GMR Rajahmundry Energy, out of the total outstanding debt of Rs3,780 crore, about Rs1,414 crore has been converted into equity by the lenders. Post conversion, the balance debt of around Rs2,366 crore would be given a repayment period of 20.5 years, including a moratorium of 1.75 years and interest rate of 10.75%. After the SDR, the total equity in the project would be Rs2,571 crore, resulting in the debt-to-equity ratio of 0.9x.