Lenders of IVRCL take the strategic debt rejig route

Setting the stage for a change in management control, the lenders of the debt-laden Iragavarapu Venkata Reddy Construction Limited (IVRCL) have invoked strategic debt restructuring (SDR).

Such a debt restructuring route can be invoked when the borrower is unable to achieve the viability milestones and/or adhere to the critical conditions as stipulated in the debt restructure package, according to Reserve Bank of India (RBI) guidelines issued in February 2014.

In a filing sent to BSE on Tuesday, the IVRCL management said the corporate debt restructuring (CDR) lenders informed them of their decision on Monday night. The co..mpany scrip closed at Rs 9.91, up 1.21 per cent, on BSE.

"At the joint lenders forum (JLF) held on November 26, the lenders invoked SDR and adopted November 26 as the reference date for the purpose. It was also decided that a senior lenders' meeting would be held to decide the way forward," a company filing said.

After invoking SDR, the lenders will have to acquire 51 per cent or more shares in the company by partly or fully converting the debt into equity to effect the change in management control.

The lenders of IVRCL already hold 43.88 per cent shares in the company as they kept converting the interest portion of the accumulated debt into equity from time to time under the CDR mechanism. The founder promoters hold just around nine per cent in the company.

"The management will support and operate the company on a day-to-day basis. We are very confident. We will come out as soon as market sentiment improves towards assets and real estate," IVRCL chairman and managing director E Sudhir Reddy told Business Standard. Reddy founded the company in 1987. In June 2014, a consortium of 20 lenders had approved a CDR package of Rs 7,350 crore for IVRCL, as it had approached the bankers for a relief in repayment terms. The company was unable to repay the debt as it fell into losses from 2012-13.

Its financial health deteriorated by the day as it has not been able to improve the revenue or cash flow position in the past one year. It recently sold three road projects for a loss of Rs 350 crore after repeated attempts at selling them met with little success.

The accumulated debt of the company stood at Rs 8,646 crore and the accumulated losses were Rs 1,568 crore at the end of March. The quarterly net loss widened to Rs 305 crore in the September quarter, as revenues continued to remain flat at around Rs 640 crore.

The decision to invoke SDR comes at a time when the present management has sought lenders' approval for demerger of the company's property development and engineering, procurement, construction business in an effort to revive its construction business.