The promoters of SWAWS Credit Corporation, a Secunderabad-based microfinance institution, are willing to give up majority stake in the company to restructure their existing bank debts that would ease the pressure on the firm’s cash flow and ensure continuity of its operations.
The microfinance institution has proposed its lenders to convert 25 per cent of the loans into equity and another 20 per cent into convertible debentures. The move will see promotes’ stake declining to 25-30 per cent from current 56 per cent.
SWAWS currently has about Rs 100 crore loans outstanding to 14 banks.
"Dilution in promoters' stake is not a primary concern at this point. Our objective is to revive the company. For that we need to restructure our existing loans," K Rahul, chief financial officer of SWAWS, told Business Standard.
However, the micro-lender is yet to convince 75 per cent of its lenders to recast the firm's debt. As per current norms, at least three-fourth of the lenders has to agree for restructuring the debts of a corporate entity. Debt recast is also possible if banks with more than 60 per cent share in the loan value agree to the restructuring proposal.
Senior officials in some of the banks, which has loan exposure in SWAWS said they were still reviewing the proposal but will agree to recast debt only if they have some assurance of recovering the money.
"Banks are always open to restructure debts because if the terms are favourable. We need to be certain that the company will able to revive its operations in the foreseeable future. Otherwise, even by having a stake in the company we will not be able to recover our dues," said a senior official with a private bank that has given loans to SWAWS.
Another banker said lenders may ask for promoters' personal guarantee for restructuring the loans. But SWAWS' top management is not keen in offering their personal guarantee.
In 2011, five microfinance institutions – SHARE Microfin, Asmitha Microfin, Spandana Sphoorty Financial, Trident Microfin and Future Financial Services – restructured over Rs 5,000 crore loans. Other than Future Financial Services, promoters of the remaining four micro-lenders did not offer their personal guarantee.
Rahul said SWAWS did not participate in microfinance firms' debt restructuring programme last year as the company expected the operating environment will improve in the latter part of 2011 and the firm will be able to raise fresh capital and loans to continue its operations.
The microfinance sector in the country is battling a crisis of confidence ever since the state government of Andhra Pradesh introduced legislation in October, 2010 curbing micro lending activities there. The industry's size has shrunk by more than Rs 10,000 crore within a year after the new law was introduced. Currently, the microfinance sector in India is estimated to be around Rs 20,000 crore.
