Demand for personal guarantees casts shadow over Hyderabad-based MFI’s debt recast plan.
Doubt remains over the Rs 2,300-crore debt recast programme of Spandana Sphoorty Financial, a Hyderabad-based microfinance institution, as banks refuse to relent on their demand for personal guarantees from the promoters.
The cash-strapped micro lender requires an additional loan to redeem commercial papers that it issued earlier to banks and financial institutions, including Bank of India, Syndicate Bank and UCO Bank. This loan will also be a part of the total debt, proposed to be restructured.
“We have to repay around Rs 140 crore in commercial papers. Spandana has a surplus of Rs 40 crore from our internal accruals. We have made a presentation to banks to give us Rs 100 crore as working capital loan, which will allow us to honour our commitment on commercial paper,” G Padmaja Reddy, managing director of Spandana, told Business Standard.
“We have proposed that this additional loan of Rs 100 crore should also be restructured, along with our existing debt,” she added.
Industry sources said ICICI Bank, Punjab National Bank and some others which had subscribed to the commercial papers issued by Spandana had agreed to provide this additional loan. But the lenders have demanded the promoters of Spandana, including Reddy, offer personal guarantees on the restructured loans.
“For restructuring to go through, both parties (bankers and promoters of Spandana) have to agree on the terms and conditions. We have agreed to recast the loans only if the promoters give their personal guarantee,” said a banker involved in the programme.
“Why should we give additional loan if we know it is going to be restructured unless there is some guarantee? So far, Reddy has not agreed on giving a guarantee. Hence, there is no certainty that restructuring will happen. We will have to wait and watch,” the banker said.
Reddy confirmed the development.
“The minutes (of the restructuring programme) are still open till June 6. The proposal has been presented and at least 75 per cent bankers by exposure and 60 per cent bankers by guarantee have to agree in favour of restructuring,” she said.
“There are certain terms and conditions, which are yet to be agreed upon. One of them is personal guarantee of promoters. We are not in favour of that as these are corporate, unsecured loans,” Reddy said.
She has found support from other microfinance companies faced with a similar problem.
“The CDR (corporate debt restructuring) master circular states that personal guarantee of promoters can be exempted in case the company’s performance is affected due to external factors. In case of microfinance, it is clearly the external environment which has affected our performance,” said Puli Kishore Kumar, managing director of Trident Microfin, another Hyderabad-based micro lender.
Spandana has proposed recast of Rs 2,296-crore debts, including the fresh working capital loan of Rs 100 crore it needs to redeem commercial papers. The tenure of the loan is proposed to be increased to seven years, including a one-year moratorium with 12 per cent interest rate. The company’s total debt is estimated around Rs 2,700 crore.
According to the terms of the restructuring programme, Spandana’s shareholders will have to raise capital of Rs 700 crore during the restructuring period. In addition, there is a provision that banks can provide Rs 200 crore fresh debt if the micro-lender convinces them that this fund can be lent to poor people outside self-help groups in rural villages without affecting the quality of the loan.
