Wilmar International set to take RBI to court over Shree Renuka Sugars

Fortune 500 agri major disputes central bank's decision to classify firm as NPA

Singapore-based Fortune 500 agribusiness major Wilmar International is set to take the Reserve Bank of India (RBI) to court over its insistence that Shree Renuka Sugars, in which it holds a 58 per cent stake, be classified as a non-performing asset (NPA) by banks.

Wilmar stands to take a big hit as its Rs 4,000-crore exposure to the company by way of equity and the loans guaranteed by Wilmar Sugar Holdings (WSH) amount to nothing. This is despite Shree Renuka Sugars’ consortium of lenders, led by IDBI Bank, having apprised the RBI that there had been a material change in the company’s management following an open offer by WSH, sources familiar with the developments said. The banks’ books will also be affected at the end of March due to provisioning, they added. 

Wilmar’s is the biggest foreign direct investment in the agriculture sector in India.

Narendra Murkumbi, who founded Renuka Sugars in 1998 and is currently a director on the company’s board, could not be reached for comments.

At the heart of the dispute is the RBI’s February 12, 2018 circular, which states that credit limits of firms be upgraded to ‘standard’ following a change in their ownership. Wilmar had held a 38.57 per cent stake in Shree Renuka as of March 2018, but after the open offer, its stake went up to 58 per cent. In addition, WSH also pumped in Rs 1,200 crore into the company and dished out a corporate guarantee to local lenders for loans of Rs 2,700 crore.

“In effect, almost Rs 4,000 crore by way of investment in the company amounts to nothing now. That includes the equity and the loans guaranteed by WSH,” said a banker. 

The RBI has effectively deemed that Wilmar has been disqualified in terms of Section 29A of the Insolvency and Bankruptcy Code (2016), which does not allow defaulted promoters and ‘related persons’ from bidding for an asset. In other words, Wilmar is being seen as a ‘related person’.

It was pointed out that the RBI’s rigid stance has a link to the case pending in the Supreme Court over its February 12 circular, which has been challenged by India Inc. 

“They (RBI) don’t want to give any leeway in this case (Renuka Sugars) as it can be used by those challenging the February 12 circular,” said a banker. Another pointed out that it was “unfair to treat Renuka Sugars as an NPA as the account is regular. At times, they don’t even draw down on the limits sanctioned to them”.