Supratim Sarkar, head of structured finance at SBI Capital Markets Ltd, receives as many as three requests every week from companies to restructure debt. He’s so busy he rejects more than half of these.
SBI Capital, a unit of State Bank of India, the nation’s largest bank, could revamp Rs 50,000 crore ($9.1 billion) in loans in the year ending March 31. That’s a 15-fold jump from Rs 3,300 crore of debt the firm helped renegotiate two years ago, he said in an interview in Mumbai. The investment bank did not revamp any loans in the 12 months to March 31, 2010.
Restructured debt, which give companies a moratorium on payments, longer maturities or lower interest rates to avoid defaults, more than doubled in the year ended March 2012 to Rs 2.2 lakh crore, according to Moody’s Investors Service, as an economic slowdown and the highest funding costs among the major Asian economies forced companies, including Kingfisher Airlines. to delay repaying debt. Borrowings more than doubled in 2010 when rates were near a record low of 4.75 per cent.
“We have come full circle from the party days of 2009-10, when advisory firms were arranging big-tickets loans, loans the borrowers had no means of servicing and for which they did not have the proper collateral,” said Saurabh Mukherjea, head of equities at Mumbai brokerage Ambit Holdings Pvt. “Excesses of the years gone by are extracting a price.”
Companies borrowed $52.5 billion in the year ended March 31, 2010, compared with $21.3 billion in the previous financial year, data compiled by Bloomberg show. The figure surged to $82.1 billion in the 12 months ended March 31, 2011, the data show.
India’s benchmark stock index crashed 25 per cent in 2011, the biggest drop in three years, prompting companies to tap the debt market.
Debt burden
SBI Capital has so far helped mobile-phone tower provider GTL Infrastructure and Bharti Shipyard ease their debt burden. IDBI Capital Market Services, a unit of state-run IDBI Bank, is also advising as many as 35 companies, said Managing Director Abhay L Bongirwar. GTL exchanged 35 per cent of its $319 million of convertible debt for shares and swapped the remaining for fresh convertible bonds due 2017. In 2010, SBI Capital helped Kingfisher controlled by liquor tycoon Vijay Mallya, revamp Rs 7,720 crore of debt. In October, Kingfisher grounded planes amid call by lenders for Mallya to raise at least $1 billion of fresh funds. The company’s operating license lapsed yesterday.
Wind-turbine maker Suzlon Energy Ltd. defaulted on $209 million of debt in October, the biggest on convertible bonds by an Indian company. Suzlon was among nine local companies that defaulted on a combined $777 million of convertible debt last year, data compiled by Bloomberg show.
Kingfisher’s shares have plunged 95 per cent from a record on December 16, 2007. They fell three per cent to Rs 14.45 in Mumbai yesterday. GTL Infrastructure gained 3.8 per cent to Rs 4.1, while Suzlon advanced 1.4 per cent to Rs 18.8.
Distressed borrowers
Indian companies’ gross non-performing loans totaled Rs 1.4 lakh crore on March 31, up 46 per cent from a year earlier, Moody’s said in a November 5 report. Restructured debt accounted for 4.7 per cent of gross loans, compared with three per cent in 2010, according to the report.
The increase in the volume of restructured debt is luring financial-services companies to the space, with advisers also offering to arrange working capital for distressed borrowers in addition to securing better terms for their loans, said Sumedha Fiscal Services Ltd’s Director Rajesh Kumar Gupta. Kolkata-based Sumedha, which had revenue of Rs 10.7 crore in the year ended March 31, is working on a dozen proposals and has seen a 50 per cent jump in in earnings from the segment in the past 18 months, according to Gupta. Centrum Capital Ltd is working on four cases, having advised eight companies since entering this business a year ago, said adviser Shashi Kalloor.
Intensifying competition
“There is a huge ability to add value in terms of innovative structures,” said IDBI Caps’ Bongirwar.
“The most important element is to convince lenders that other than timing and environment, there was nothing wrong with the company.”
Competition is intensifying as brokers such as Edelweiss Financial Services Ltd, which posted its lowest profit since listing in 2007 in the September quarter, enter the segment. Some consultants are slashing fees, said Kalloor, squeezing margin in a business that deals with cash-strapped companies with little or no money to pay their lenders.
Still, with interest rates in Asia’s third-largest economy set to drop, the debt-restructuring business may slow. Reserve Bank of India Governor Duvvuri Subbarao on December 18 signaled higher odds of an interest-rate cut after a record 13 increases since March 2010.
The central bank kept the rate at eight per cent on December 18.
“It is a relationship building exercise,” SBI’s Sarkar said. “We help them out in distress times and they will hopefully remember us in the good times.”
