Lenders to take charge of asset sale at cash-strapped Lanco Infratech

NEW DELHI: India's top lenders, impatient with the delays in cash-strapped Lanco Infratech's asset-disposal programme, are planning to take direct charge of the process to ensure they get what was owed to them, while providing fresh loans to get projects that have been stuck for various reasons moving again, according to an internal note.

The banks, which have an exposure of Rs 49,000 crore to Lanco, will set up a three-member committee to run asset divestment. The company, which has been looking to raise money to pare debt, recently found a buyer for its Udupi power project but hasn't met with much success other than that. The lenders in turn will give fresh loans to complete projects that have got stuck.

The bankers to Lanco, which has a market cap of less than Rs 2,000 crore, have decided that the "lead banker of project under construction may re-appraise the project within September 2014 and consider financing either 80:10:10 or convert part of the debt into equity upfront to ensure projects are completed and lenders can recoup their dues."

This means that banks will give fresh loans to the extent of 80% of the project cost. In addition, 10% will be given in the form of sub-debt that can be converted into equity any time before the commercial operational date (COD). Hence the promoters need to chip in only 10% of the project cost as equity, said a banker, requesting anonymity.
The measures were decided at a meeting headed by Punjab National Bank chairman and managing director KR Kamath last month in the Capital and attended by top officials of almost all leading banks and Lanco executives.

"Lenders expressed their concern that the overdue position of the company is very serious. It was also observed that other than Udupi, presently the company has no offer for any other asset to liquidate," according to the note on the proceedings that was reviewed by ET.

"Lenders felt that the company should expedite steps for monetising their assets to liquidate, and the company's contention that they are not able to find suitable buyer is not acceptable," the note said. Officials of SBI Caps, which is advising the company, told bankers at the meeting that, "Owing to environment factors, the Lanco group has suffered heavily and has been incurring losses for the last two years. Its cash flow is heavily strained and currently there are over dues to the tune of Rs 1,700 crore to the entire banking system,” according to the note.

The company, which recently sold its Udupi power project to Adani Power for Rs 6,000 crore, is expecting a net cash flow of Rs 925 crore after adjustment of debt.

"Only Udupi sale alone will not be sufficient to improve the cash flow position of the group. The lenders need to explore what asset could be sold next at the earliest so that the debt burden on the group reduces," bankers observed at the meeting, according to the note. A Lanco spokesperson said the company had asked for loans in the 80:10:10 ratio to help ease the pressure on it.

"Our corporate debt restructuring (CDR) package has in itself a definitive programme of selling some of our assets and to that extent we too have engaged various investment bankers besides being in talks with strategic partners on some of the assets," the spokesperson told ET.

A mail sent to the leading banks including Punjab National Bank, ICICI Bank and State Bank of India did not elicit a response as of press time. The banks decided that monitoring institutions should expedite the release of priority loans and need-based, non-fund facilities to kickstart the operating cycle.

The company has sought the relaxation of pre-disbursement conditions for the release of undrawn priority loans of Rs 1,445 crore, the note revealed. In addition, it asked for sanction and disbursement of untied priority loans of .`402 crore, and a fresh bank guarantee limit of Rs 1,650 crore.

However, the Lanco spokesperson said, “Other than what was sanctioned under the CDR package, no further bank guarantee was sought by us in any forum since last two months." Lanco’s official in the meeting said that the company has an order book of Rs 21,000 crore, including Rs 18,048 crore from the power sector.