Various banks have taken control of Hyderabad-based microfinance firm Trident Microfin by acquiring a majority stake in the firm, leaving promoter and chief executive Kishore Kumar Puli with a stake of only 4.2 per cent.
As many as 20 banks, including ICICI Bank, HDFC Bank, Axis Bank, Indian Overseas Bank, Bank of India and Union Bank of India, have together acquired over 60 per cent stake in the microfinance company by converting a part of its debts into equity shares.
The remaining stake in the company is held by institutional investors Bellwether Microfinance Fund and India Financial Inclusion Fund. Among the five microfinance firms that opted for a debt recast, Trident is the only micro-lender in which banks have acquired equity stake.
The banks converted around Rs 32-crore debts into equity shares, at a price of Rs 10 per share, even though the book value of the company is estimated at around Rs 18.60 per share. The move is part of Trident's plan to restructure Rs 125.5-crore bank debts.
“The banks were not interested in converting the debts into equity shares at a premium. They were willing to convert it only at face value. The primary objective is to revive the company. It does not matter who owns the company, what matters is how we can take Trident back to its old glory,” Puli said.
A representative from Indian Overseas Bank, which, with a stake of 14.13 per cent, accounts for the largest stake among banks, would be appointed as Trident's non-executive chairman and would be present in all board meetings of the company. Puli would continue to be the company's chief executive officer.
Besides converting 25 per cent of existing debts into equity shares, the banks also converted an additional 25 per cent of their loans to Trident into optionally-convertible preference shares.
If Trident fails to repay the remaining debts, or does not comply with the conditions mentioned in the debt-restructuring programme, the preference shares would also be converted into equity shares, giving the banks almost absolute control in the microfinance firm.
The conversion of loans into equity and preference shares did not require the prior approval of the Reserve Bank of India, since these debts were being restructured, Puli said.
According to the terms agreed between the banks and Trident, the microfinance company would repay around Rs 62 crore of debts over the next eight years, including two years of moratorium at an interest of 12 per cent.
The banks, however, would not cut Puli's remuneration, estimated at around Rs 24 lakh per annum, though the corporate debt restructuring (CDR) cell has decided to screen the salaries of top officials of microfinance firms that chose to recast their debts. The clause demanding a personal guarantee from the promoter has also been waived for Trident.
Trident started operations in 2007, and its net worth is Rs 18 crore.