The proposal to restructure the debt of Zoom Developers, the engineering procurement and construction company, has fallen through. Banks aren’t convinced of the company’s business model and feel only recasting the debt may not suffice.
SBI Caps was given a mandate to study its viability and to suggest a debt restructuring package. Lender banks have also declined to infuse fresh funds.
Zoom was admitted for corporate debt restructuring (CDR) last year but this process has been stopped. As a result, a consortium of 27 banks, with combined exposure of Rs 2,600 crore, will start trying to recover their loans. Punjab National Bank was the lead banker, with an exposure of Rs 450 crore, of which nearly Rs 300 crore was classfied by it as non-performing assets in the first quarter of 2010-11.
“We are not sure about the viability of the business model. So, restructuring the debt and giving more time to the company to repay may not yield the desired result,” said an official from one of the banks.
Most of its loans have been classified as non-performing and the required provisioning made.
Some banks said they were not confident about how much they could recover. Which would mean most of the amount has to be written off. For writing off a loan, banks need to make 100 per cent provisioning. Banks, however, can still recover from the written off accounts.
Zoom Developers is Mumbai-based, with projects mostly in countries abroad. It undertakes business and project development work, involving process plants, industrial and engineering projects, and energy, environment and infrastructure ones.
Once a company is admitted, as Zoom was last year, into the CDR mechanism, a proposal is worked on how to recast the debt, by giving more time to repay and also altering the interest rate. For approving a CDR proposal, 75 per cent of the lenders, both in amount and number, should agree.
The management of Zoom had asked for an additional Rs 2,000 crore from the banks. “Most of the banks declined, as they were uncertain of the company’s re-payment capacity,” said an executive from a public sector bank.