Asset Reconstruction Company of India (Arcil) today said the business restructuring carried out by it at debt-laden Sakthi Sugars has been successful and the company, which failed in two successive CDRs, has a better future now.
"Our calculations even at the numbers below the current sugar prices seem to suggest that the restructuring which we have carried out will leave the company in a situation where the debt servicing capability is good and assured with a certain amount of buffer as well," Arcil Chief Executive and Managing Director Vinayak Bahuguna told PTI.
Arcil, the country's oldest asset reconstruction company (ARC), bought 50 per cent of Rs 1,100 crore loan that the sugar company had taken from five banks led by Bank of India and its internal teams started working on the restructuring from 2014.
"The objective was to restore the company to financial stability and solvency where it can regularly meet its debt obligations, protect and grow shareholder value," he said.
As part of a three-pronged solution, Arcil wrote off a part of the bad debt, converted Rs 61 crore of its debt for a 19 per cent equity and also refinanced one of the group companies which was given a loan by Sakthi Sugars, he said.
He did not disclose the extent of the debt write-off and refinance, but explained that one of the group companies, which is not into sugar business, was given a loan by the parent, which has now been refinanced for a period of four years, thereby helping the cash flows of Sakthi Sugars.
Sakthi Sugars had failed the CDR twice, in 2009 and 2013, and Arcil has time till 2022 to be with the company and may exit its holding before that as well, he said.
When asked about what Arcil will get from the deal, he said, "Its fees, coupon on the loan and equity upside."
Bahuguna said the strategy adopted by Arcil is a departure from the way ARCs are operating, where they focus only on the recoveries and do not implement such an exercise of restoring value in a business.
The fact that the company is in the volatile sugar industry, which is subject to government-set minimum support price, caps on exports and other restrictions, only made it more challenging, he said.
He also exuded confidence that banks holding the security receipts will be able to redeem above par, which is good news for the bad assets-hit lenders. Additionally, now that some value has been restored, banks will also be able to sell their security receipts (SRs) in the secondary market.
The company had reported Rs 20.05 crore loss on a revenue of Rs 147.33 crore for the quarter ended December.
Sakthi Sugars stocks closed 2.6 per cent down at Rs 37 on the BSE, as against a 1.19 per cent correction in the benchmark Sensex.