SWAWS Credit Corporation has become the second microfinance institution whose loan recast proposal has been admitted in the corporate debt restructuring (CDR) cell this calendar year.
The Secunderabad-based microlender’s debt restructuring plan hit a hurdle after Punjab National Bank (PNB) and HDFC Bank did not agree to convert a part of its loans into shares. Since PNB was the lead bank with a 30 per cent share in the loans borrowed by SWAWS, the latter’s loan recast plan was not admitted in the CDR cell.
According to current norms, to admit a loan restructuring plan in the CDR cell, at least 60 per cent of the creditors by number and 75 per cent of the lenders by value have to approve the package.
“Our case has been admitted in the CDR cell. We had met PNB’s top management last month and convinced them that conversion was needed to sustain our operations and service the restructured loans. PNB has been appointed as the monitoring institution. The final package has to be prepared and brought to CDR’s executive committee within 60 days,” K Rahul, chief financial officer of SWAWS, told Business Standard.
“The package will be without additional funding that we had sought. Banks have also asked the promoters to improve their (capital) contribution in the company,” he said.
The initial draft of the debt restructuring package said the banks would recast close to Rs 91 crore of SWAWS’ loans. As a part of the restructuring programme, around 30 per cent of these loans will be converted into shares. The other terms and conditions, including the revised rate of interest and repayment tenure, will be decided by the lenders soon.
Earlier this calendar year, banks had agreed to restructure loans of Bhartiya Samruddhi Finance, the microfinance arm of social entrepreneur Vijay Mahajan-led BASIX Group. Three other microfinance companies — Cresa Financial Services, Dovefin Micro Finance, and Nano Financial Services — had also requested banks to restructure their loans. These firms have not been able to convince their lenders so far.
In 2011, five microfinance institutions—SHARE Microfin, Asmitha Microfin, Spandana Sphoorty Financial, Trident Microfin, and Future Financial Services — had restructured close to Rs 5,000 crore in loans, after the sector plunged into a crisis, following restrictions imposed by the Andhra Pradesh government on microlending activities in the state.