Bank NPA crisis a big opportunity? For these foreign banks, there is

Foreign banks such as Bank of America Merrill Lynch and Deutsche Bank are keen to buy out non-performing assets (NPAs) from Indian banks. They are in active discussion with Indian banks to take over some loans that have come to the National Company Law Tribunal (NCLT) and stressed assets that have the potential to be taken over and revived.

Some of the assets that are yet to reach the Tribunal such as Jabua Power in Madhya Pradesh and GMR Energy assets are also on the radar. The foreign banks believe that they can revive and refinance them. In many cases, the foreign lenders are looking at one-time settlement with existing banks and taking over the loans.

Both Duetsche Bank and Bank of America did not respond to email questionnaires sent to them.

A senior banker told DNA Money, “There are two kind of structures that the foreign banks are exploring. They are playing the role of an arranger for a bad loan when they buy it through a fund and earn a fee. And the other arrangement is where they buy out the loans of the domestic banks and refinance them to expand their lending activities in the country.”

Jhabua Power, the 600 mega watt thermal power plant in Madhya Pradesh set up by the Avantha Group, is one asset the foreign banks are looking at. It is on the block for non-payment of dues worth Rs 3,000 crore from a consortium of banks led by Axis Bank.

Foreign banks find it easy to refinance stressed power plants such as Jhabua Power, which have long-term power purchase agreements for over 70% of the power it produces and a coal linkage with Coal India. The other set of assets currently in the NCLT that are catching the foreign lenders’ interest are accounts like Essar Steel, Bhushan Power and Steel, and Binani Steel, where the resolutions are close to being finalised. Banks are looking at buying some of these assets through a fund and down sell the asset to other interested parties earning a fee for arranging the deal.

Domestic banks that are in a hurry to clean up their books are in negotiations with the foreign lenders but reaching a consensus on the price is a big bottleneck.

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Engineering projects and steel loans are also catching the attention of the foreign lenders. “They are looking at a gamut of assets in various sectors,” said another banker.

“However, no sale has yet happened. Due diligence in a couple of cases are happening but we are unable to agree on the price,” another banker said. Banks are trying to restructure the stressed power plant’s debt by segregating the sustainable and unsustainable debt.

The sustainable portion will be rated to be sold off to foreign banks or private equity funds. The unsustainable portion will be converted into long-term debt instruments.

Source: DNA