Lenders mull strategic debt restructuring of Tilaknagar

Move expected to help the liquor major pare debt of close to Rs 800 crore

A consortium of lenders led by Bank of India and State Bank of India (SBI) is considering strategic debt restructuring (SDR) of liquor major Tilaknagar Industries. According to sources, the decision was taken at a high-level meeting of lenders in the city last week. Besides Bank of India and SBI, Punjab National Bank, IDBI and Axis Bank have exposure to Tilaknagar, whose debt is close to Rs 800 crore. Bank of India alone is estimated to have an exposure of Rs 200 crore in Tilaknagar, the highest among lenders.

At the meeting, the banks also discussed other restructuring options, but eventually settled for SDR, which will allow them to pick up a minimum of 51 per cent stake in the company, officials privy to the development said.

The proposal, whose nitty-gritty will come up for discussion later, envisages conversion of debt to the tune of Rs 325 crore into equity.

"Tilaknagar's current problem has been high leverage. With conversion of its debt into equity, the remaining amount of Rs 450 crore will be sustainable," said an official.

Amit Dahanukar, chairman and managing director of Tilaknagar Industries, was not immediately available for comments. A mail sent to him remained unanswered till the time of going to press.

Tilaknagar's interest costs in the past five years have grown 151 per cent even as total debt touched Rs 790 crore for FY15. Total debt, according to sources, is now down to Rs 775 crore for the current financial year.

The SDR gains importance since Tilaknagar has been facing a cash crunch on account of cessation of operations by the company's main bottler in Tamil Nadu, imposition of prohibition in Kerala and the bifurcation of Andhra Pradesh. These states are key markets for the company. If close to 42 per cent of its debt, say industry analysts, is converted into equity, interest costs will proportionately come down. This money is expected to be ploughed back into the business to improve operational performance.

According to sources, the SDR will also pave the way for a stake sale, something that Tilaknagar has not been averse to. Reserve Bank of India rules mandate banks to hold stake in a company under SDR for not more than 18 months, implying that interested buyers are expected to knock at their doors to pick up the stake in the future.

In the past, Tilaknagar was in talks with the Kishore-Chhabria-owned Allied Blenders & Distillers for a stake sale, which did not materialise.

Highly placed sources have told Business Standard that firms such as Jagatjit Industries, maker of Aristocrat brandy, whisky, gin, vodka and rum, had also approached Tilaknagar for a buyout and so had funds such as KKR and TPG. But, none of these talks resulted in a deal.