Bharati Shipyard's final debt recast offer to be discussed today

Lenders against part conversion of loans to equity

Bankers to debt-ridden Bharati Shipyard have declined, so far, to convert part of their loans into equity to protect lenders’ interests. The lenders are to consider a final debt recast proposal tomorrow.

A senior public sector bank (PSB) executive said the referral for corporate debt restructuring was in the third quarter of 2011-12. Initially, there was a proposal to convert 10 per cent of loans into convertible instruments. These were to be converted into common equity on maturity. The final proposal is to have a provision for debt with a payment moratorium, extra time for repayment and revision in interest rate. It would also spell out the extra amount promoters would have to chip in as contribution and commitment for the debt recast, the official added.

Another PSB official said the government in April had raised a concern over the increasing tendency of lenders, mostly state-owned banks, to convert a significant part of loans into equity instruments, such as cumulative convertible preference shares. This is, went the objection, like a grant to the promoter shareholder. No dividend accrues on such shares until the company becomes profitable. It is not a healthy practice and also not a desirable policy instrument, the finance ministry had said.

Bharati Shipyard has seen its debt balloon as it was hit by the economic slowdown. Its loans, both short-term and long term borrowing, rose to Rs 3,861 crore at the end of March 2012 from Rs 3,037 crore a year before. The company posted a net loss of Rs 36.5 crore in January-March 2012, from a net profit of Rs 1.6 crore in the same quarter of 2010-11. For 2011-12, net profit dived to a mere Rs 5.95 crore from Rs 113.45 crore for 2010-11.

The stock closed 1.5 per cent down at Rs 63.50 on the Bombay Stock Exchange on Thursday.