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Gammon lenders start debt to equity swap

Gammon India had announced a major loan restructuring exercise in 2013 under which it would convert debt totalling over Rs 14,800 crore into equity and lenders would be issued shares worth over Rs 4,500 crore.

By: ENS Economic Bureau | Mumbai | Published: November 24, 2015 1:21:15 am

Engineering firm Gammon India’s lenders have begun a process of swapping their debt into equity under the strategic debt restructuring (SDR) scheme. If the banks acquire 51 per cent stake in beleaguered Gammon under the SDR route, then they will bring in a new strategic promoter as per the Reserve Bank of India rules.

“The Corporate Debt Restructuring Empowered Group (CDR EG) in its meeting held on November 23 has discussed and noted the invocation of strategic debt restructuring in the company by the CDR lenders, pursuant to the RBI circular dated June 8, 2015,” the company said in a stock exchange filing on Monday.

In June 2015, the Reserve Bank of India (RBI) had come out with the stringent strategic debt restructuring (SDR) scheme incorporating features like majority (51 per cent) stake for banks in stressed companies, faster conversion of debt into equity and bringing in a new promoter.

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According to the RBI norms, banks that decide to recast a company’s debt under the proposed “strategic debt restructuring” scheme must hold 51 per cent or more of the equity after the debt-for-share conversion. At the time of initial restructuring, the joint lenders forum (JLF) must incorporate an option to convert the entire loan (including unpaid interest), or part thereof, into shares in the company in the event the borrower is not able to achieve the viability milestones and adhere to ‘critical conditions’ as stipulated in the restructuring package.

Reeling under huge debt, engineering firm Gammon India had announced a major loan restructuring exercise in 2013 under which it would convert debt totalling over Rs 14,800 crore into equity and lenders would be issued fresh shares worth more than Rs 4,500 crore. Gammon’s CDR package was approved in June 2013. Its board then approved conversion of restructured debt — worth Rs 14,814.17 crore — into equity shares. The company then decided to issue over 34 crore shares, at a price of Rs 27.05 apiece, aggregating to Rs 929.99 crore to the lenders on preferential basis.

This issue would be towards conversion of fund-based facilities — working capital term loan and funded interest term loan — at any time during the CDR package implementation.

In August this year, Canada’s Brookfield Asset Management made its first major investment in the Indian infrastructure space, by buying six road and three power projects from Gammon Infrastructure Projects (GIPL), the infrastructure arm of debt-laden Gammon India.

A consortium comprising Brookfield and Core Infrastructure India Fund – BIF India Holdings – will buy the projects, six of which are operational. The deal involves part cash payment, certain milestone-linked payments, and takeover of debt in the special purpose vehicles operating these assets.

The deal included an immediate cash payment of Rs 563 crore and future undisclosed sums based on certain performance targets being met.

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