SBI Caps readies Gujarat State Petroleum Corp's loan reduction proposal

At a time when private companies are staring at insolvency, SBI Caps has worked out a bail-out package for state government-owned Gujarat State Petroleum Corporation where the State Bank of India is one of the lead bankers. In a presentation outlining the mechanism for loan resolution, it has proposed that SBI offer a debt of Rs 21 billion to refinance Gujarat State Financial Services Ltd’s (GSFS) loan to GSPC.

Prior to this refinancing, GSPC will draw incremental Rs 6 billion from GSFS as general corporate purpose loan. As a third step, fresh facility of Rs 15 billion will be availed from GSFS to refinance outstanding line of credit and short term loans that amount to Rs 21 billion.

SBI Caps, which was hired by GSPC to suggest a loan reduction plan, has also identified certain requirements, like a fresh cash credit limit of Rs 7.5 billion, and non-fund based limits of Rs 20 billion translating to Rs 5 billion incremental limit. It has also suggested that GSPC Pipavav give Oil and Natural Gas Corporation Rs 4 billion standby letter of credit (SBLC) for supply of 5 mmscmd gas.

SBI has also been requested to extend conversion of Compulsorily Convertible Debentures amounting to Rs 5.5 billion that are due for conversion this financial year.

GSPC is looking for approval of lenders to approve a scheme of arrangement under which non-convertible debentures of about Rs 6 billion would be transferred to GSIL. This takeover of NCDs has been approved by the Gujarat Cabinet.

The Gujarat government company that was once one of the major players in the petroleum and gas sector had to sell off its Deendayal Upadhaya block in the Krishna Godvari basin as part of its effort to reduce debt. The accumulation of debt on its books led to the Congress calling it a scam of the Gujarat government when prime minister Narendra Modi was the state chief minister.

In August 2017, GSPC transferred its 80 per cent participating interest in the block to Central government-owned Oil and Natural Gas Corporation for Rs 75.6 billion, proceeds from which were utilised for part payment of secured debt. Besides, GSPC divested 28 per cent in Gujarat Gas Ltd to its subsidiary Gujarat State Petronet Ltd in March 2018 for Rs 32.57 billion. This sum was used for part prepayment of unsecured loans.

The two deals helped the company to reduce its debt by about 54 per cent from Rs 228.77 billion in March 2017 to Rs 125.19 billion.

Proposed mechanism for bank loan resolution of GSPC

(in Rs billion)	Existing	Step 1	Step 2	Step 3
GSFS	15	21	-	15
LOC + STL	21	15	15	-
New Loan	-	-	21	21
RTL-ECB	32.83	32.83	32.83	32.83
CCDs	5.5	5.5	5.5	5.5
Total	74.33	74.33	74.33	74.33
Source: SBI Presentation