Debt recast of BPL hits more hurdles

BPL Limited, which is in the process of restructuring its Rs 1,400 crore debt burden, is facing further hurdles from some of its lenders. Some banks are taking legal recourse to stall the corporate debt restructuring (CDR) programme proposed by BPL.

BPL, under CDR, has offered three options under which one of the options for banks and financial institutions is that they agree to a waiver of 72 per cent. They will in turn need to take steps for withdrawing legal suits filed against BPL.

Another option for lenders is an upfront cash payment aggregating 25 per cent of loans and waiver of 50 per cent of loans with the remaining amount being restructured over an extended period.

Under the third option 75 per cent of the outstanding will be converted into loans carrying zero per cent interest repayable in 10 years while the remaining will be spread over an extended period.

The banks have said that the CDR formulated is not viable and tenable and have also questioned if the proposed joint venture with Sanyo will serve its purpose.

The banks have said that while the total outstanding is Rs 1,497.57 crore, the proposed JV is expected to fetch only Rs 322 crore and further there is no time frame for earning the expected net cash inflow.

They have also stated that the CDR talks about BPL's plans of divestment of non-core business and the sale of investments with long gestation periods. However, it does not contain details of expected sales proceeds and probability of sales.

Senior sources in the company highlight that the company has made investments and loans and advances in BPL consumer, component, power and private finance companies, amounting to Rs 680 crore which will in all probability not bring returns.

"It will require a herculean task for the company to wriggle out of the trap. The total return on investments of Rs 680 crore made in these companies will be virtually nothing since these investments have been funded through borrowing.

Adjusting for cost of borrowing, the total return on those investments is 16 per cent in the negative. "This implies that almost Rs 108 crore of losses per year on account of the investments," the official noted.