HCC becomes first to get debt recast approval under S4A, more may follow

Construction major HCC's Rs 5,000- crore debt recast has become the first case to get approval of a high-level panel set up under RBI's new Scheme for Sustainable Structuring of Stressed Assets (S4A).

The scheme, which was passed by an ICICI Bank-led joint lender forum in September, has been now approved by the RBI- mandated Overseeing Committee (OC) and can be implemented now, banking sources said.

Under this recast of HCC's Rs 5,000 crore debt, which has become the first successful resolution case under the RBI's highly-ambitious S4A tool, 52 per cent of debt (nearly Rs 2,600 crore) was found to be sustainable and would be serviced as per the original terms and conditions, including about interest rate and tenure.

Out of the remaining 48 per cent (Rs 2,400 crore), debt of Rs 1,000 crore would be converted into equity for the banks, which could eventually give them 25 per cent stake in the company's post-scheme equity capital.

The remaining debt of Rs 1,400 crore would get converted into optionally convertible debentures to be issued to the lenders, sources said. These measures would now go for approval from HCC's shareholders.

No immediate comments could be obtained from HCC.

Bankers said quite a few other cases are being worked out for resolution under the S4A scheme and some of them should soon see light of the day.

Under S4A scheme, unveiled by RBI earlier this year to help resolve the corporate debt problem, a company's debt is bifurcated into two parts -- the first being sustainable debt that cannot be less than 50 per cent of existing debt and will have to be serviced over the same terms as that of existing facilities.

The other unsustainable part of the loan can either be converted into equity, Redeemable Optionally Convertible Preference Share or Optionally Convertible Debentures, with clearly spelt out terms.

Lenders get 90 days from 'Reference Date' to formulate the resolution plan and implement the same, along with necessary internal approvals.

The resolution plan is then submitted by the lenders to the Overseeing Committee (OC), constituted by Indian Banks Association in consultation with RBI. It comprises eminent persons and the members cannot be changed without the prior approval of RBI.

The OC reviews the processes involved in preparation of resolution plan for reasonableness and adherence to the provisions of these guidelines, and give its opinion.