Kalia_Test Posted June 5, 2015 Posted June 5, 2015 Was just watching CNBC TV18 an hr back and there was this news flashing that Consortium of Banks led by SBI and PNB have agreed to extend the tenure of loan from 8 years to 25 years under RBI's 5:25 scheme. http://www.moneycontrol.com/news/cnbc-tv18-comments/bhushan-steel-gets-nodlenders-to-restructure-loans_1400370.html This is ridiculous and will only suppress clear NPA that NEEDs to appear in Balance Sheet of Banks. Had a quick look at Annual Report and P&L of Bhushan Steel and some data from NSE. Bhushan Steel Networth ( Assets - Liabilities ) i.e Book Value = 9000 odd Crores Its Total debt = 35000 crores :omg: Market Cap as per current rates ( it spiked up after news ) = 1500 odd crores http://www.bhushan-group.org/pdf/Audited-Unaudited-Financial-Result-31st-March-2015.pdf In the quarter ended 31st March 2015 (standalone ), it made a loss of 360 odd crores In the year ended 31st March 2015 ( consolidated ), it made a loss of 1256 crores At EBIT level ( i.e before Interest is paid on debt ), they are making profit ( about 1233 crore on a consolidated basis for FY15 ) but the interest costs are pushing the company further and further down. It cannot raise equity considering its miniscule market cap compared to debt. This is as simple a case for Banks to declare Bhushan Steel as an NPA but some small Banks will go bust if they do - Heck their book value might be equal to their exposure to Bhushan Steel. This is a blatant case of hiding the real problems or postponing it. It is ridiculous that the Consortium agrees to the restructure and RBI is apparently OK with this :mad:
Kalia_Test Posted June 5, 2015 Author Posted June 5, 2015 Did a bit of googling...looks like this was a worry since an year and there was bribery involved by company to Syndicate Bank CMD :banghead: http://www.firstpost.com/business/money/why-did-banks-wake-up-to-bhushan-steels-woes-only-post-syndicate-bank-scam-2011273.html It makes this restructure all the more painful when it is evident all is not well with Bhushan Steel. The Banks need to swallow bitter pill ( 51 lenders were involved apparently ) and take this in their chin.
randomGuy Posted June 5, 2015 Posted June 5, 2015 Best hope for co. like jp ass. n bhushan steel is if they can sell some of their assets to lower the debt to equity ratio else they are doomed. Jp recently said they will sell assets to reduce D:E ratio from 4.5 to 1.5.
amiret Posted June 5, 2015 Posted June 5, 2015 5 : 25 RBI Scheme rule allows banks to refinance a project every five years, on new terms, without the asset being classified as restructured. The idea is to allow companies to repay loans, over a longer period, without too much stress. As such, the repayment tenure should be better aligned with the period when cash flows are generated by the asset. So keep kicking the ball down the road ? without the debtor being classified as NPA ? Bhushan Steel bribed the Syndicate Bank chairman and yet they are not going to face any consequences ? most PSB's are trading close to their 52 week lows except SBI .
amiret Posted June 5, 2015 Posted June 5, 2015 This is a blatant case of hiding the real problems or postponing it. It is ridiculous that the Consortium agrees to the restructure and RBI is apparently OK with this :mad: Story of Indian Public Sector Banking industry for the last 2-3 decades.
G_B_ Posted June 5, 2015 Posted June 5, 2015 I am reminded of an article in bloomberg business-week. The impact of Indian rate cuts are really dampened due to our state owned banks.
BeautifulGame Posted June 5, 2015 Posted June 5, 2015 These restructuring are done at ED level in accordance with what Finance Ministry says .Becoz no one wants to fix Accountability Also not sure what the source for Banks might go bust if shown as NPA? Not sure about it becoz no bank is allowed to give more than 10% of their advances to a particular group or company .
Kalia_Test Posted June 5, 2015 Author Posted June 5, 2015 These restructuring are done at ED level in accordance with what Finance Ministry says .Becoz no one wants to fix Accountability Also not sure what the source for Banks might go bust if shown as NPA? Not sure about it becoz no bank is allowed to give more than 10% of their advances to a particular group or company . That is the power of leverage for you and that is how Banks work. Say a Bank starts with Equity i.e Promoter Capital of 100 INR and it has a Banking license. Typically Banks are leveraged 10 times ( some more - some less ). So with their 100 rupees - they are authorised to collect 1000 rupees as deposits ( they have to park a bit of this with RBI but I am ignoring it for simplicity ). Now you lent 10% of this to Bhushan Steel i.e 100 INR and it is NPA ( meaning you are not going to get your money back ). This has wiped away your entire Equity i.e you are bust. Hope this explains - Pls do remember that Bhushan Steel is not the only stressed asset for PSBs. Some PSBs already have 4% NPA or more and if Bhushan Steel ( a BIG borrower from almost every Bank ) is declared NPA, then "boooom". Maybe that is the reason RBI agreed.
Kalia_Test Posted June 5, 2015 Author Posted June 5, 2015 Best hope for co. like jp ass. n bhushan steel is if they can sell some of their assets to lower the debt to equity ratio else they are doomed. Jp recently said they will sell assets to reduce D:E ratio from 4.5 to 1.5. But if they are selling core assets ( they won't have many non-core assets IMO ), then they are effectively shutting down their Business , isn't it?
randomGuy Posted June 5, 2015 Posted June 5, 2015 BTW from June quarter, there will be no 'restructured assets' in bank balance sheets. So loan will either be a standard asset or it will be an NPA. But if they are selling core assets ( they won't have many non-core assets IMO )' date=' then they are effectively shutting down their Business , isn't it?[/quote'] JP group is active in Engineering Construction Cement Power Hospitality Real Estate Expressways Information Technology As per wiki. They are looking to sell certain power projects etc. to bring down the debt. I guess they earn only enough revenue to service their debt from these projects. so better sell them and have better looking books.
BeautifulGame Posted June 5, 2015 Posted June 5, 2015 BTW from June quarter, there will be no 'restructured assets' in bank balance sheets. So loan will either be a standard asset or it will be an NPA. JP group is active in Engineering Construction Cement Power Hospitality Real Estate Expressways Information Technology As per wiki. They are looking to sell certain power projects etc. to bring down the debt. I guess they earn only enough revenue to service their debt from these projects. so better sell them and have better looking books. It has been that way since last March 14That's why NPA has gone up (some banks have 6%) this march FY . But the restructuring and hiding won't stop until Basel3 norms are implemented
randomGuy Posted June 5, 2015 Posted June 5, 2015 It has been that way since last March 14That's why NPA has gone up (some banks have 6%) this march FY . But the restructuring and hiding won't closed until Basel3 norms are implemented Banks won't be reporting restructured assets from this quarter. A loan will either be a standard asset or will have to be categorised as an NPA. This has been done precisely to prevent banks from hiding bad loans in form of restructured assets
BeautifulGame Posted June 5, 2015 Posted June 5, 2015 Banks won't be reporting restructured assets from this quarter. A loan will either be a standard asset or will have to be categorised as an NPA. This has been done precisely to prevent banks from hiding bad loans in form of restructured assets Any links for this plz . If true this is a big news and haven't seen it anywhere .
Kalia_Test Posted June 5, 2015 Author Posted June 5, 2015 Banks got more time - http://www.dnaindia.com/money/report-rbi-gives-banks-more-time-to-restructure-loans-2075310 On Asset sale, a better option would be Sale and Leaseback arrangement and looks like Banks considered it ( maybe they were under pressure due to result season and will pursue later ). Hypothetical Sale and Leaseback transaction :- - Bhushan Steel creates a SPV ( lets say Bhushan SPV ) pumping in token Equity. The liabilities of Bhushan Steel are not binding on SPV i.e it a LLC - Bhushan Steel agrees with Bhushan SPV that it will sell all its Operating Assets to Bhushan SPV say for 25000 crores provided the SPV leases the Assets back for a certain lease amount p.a for a period of 25 years. - At end of 25 years, the SPV has to sell back the Assets to Bhushan Steel for a pre-determined price. - Using this agreement, the SPV approaches the same Consortium of Banks for a Loan using the Collateral of Assets and cash-flows from Bhushan Steel's Operations ( which are positive at EBIT level and it would be debt-free or almost debt-free anyway after the Sale and leaseback ). - So paper transaction will be done and now Bhushan Steel's debt is gone, Bank's have a new loan backed by cash-flows and structured in a proper way. Other advantages - Here the seller is the lessee too so terms of sale and leaseback can be in favor of Bhushan Steel and agreeable to lenders. - The lease is considered an expense and Bhushan Steel gets tax exemption to that effect - Since this is a Financial lease and not Operating lease, depreciation of Assets also can be claimed by Bhushan Steel This will need Shareholder approval
randomGuy Posted June 5, 2015 Posted June 5, 2015 Any links for this plz . If true this is a big news and haven't seen it anywhere . http://www.livemint.com/Industry/dLp9X134SqGvtgQmwDbVuN/Banks-rush-to-restructure-bad-loans-before-rule-change.html
mishra Posted June 5, 2015 Posted June 5, 2015 http://www.financialexpress.com/article/economy/rbi-gives-banks-more-say-over-sick-companies/80534/The Reserve Bank of India (RBI) said banks can start using the strategic debt restructuring (SDR) scheme, which will allow them to acquire a 51% stake or more in stressed companies. The Securities and Exchange Board of India (Sebi) had given its nod to the scheme earlier this year, allowing banks to convert debt into equity at a price that was fair but not below the face value. “The scheme has our approval and Sebi’s too, so lenders can now use it,” RBI governor Raghuram Rajan told FE in an interview on Wednesday. The SDR scheme is aimed at helping banks turn around companies that are faring badly, if necessary by initiating management changes. “Our sense is that in certain situations control might be beneficial in order to enable them to easily restructure the company and the management. Essentially you have got an in-built bankruptcy process that Sebi feels comfortable with and RBI feels comfortable with,” Rajan said. ..
amiret Posted June 5, 2015 Posted June 5, 2015 On Asset sale, a better option would be Sale and Leaseback arrangement and looks like Banks considered it ( maybe they were under pressure due to result season and will pursue later ). Hypothetical Sale and Leaseback transaction :- - Bhushan Steel creates a SPV ( lets say Bhushan SPV ) pumping in token Equity. The liabilities of Bhushan Steel are not binding on SPV i.e it a LLC - Bhushan Steel agrees with Bhushan SPV that it will sell all its Operating Assets to Bhushan SPV say for 25000 crores provided the SPV leases the Assets back for a certain lease amount p.a for a period of 25 years. - At end of 25 years, the SPV has to sell back the Assets to Bhushan Steel for a pre-determined price. - Using this agreement, the SPV approaches the same Consortium of Banks for a Loan using the Collateral of Assets and cash-flows from Bhushan Steel's Operations ( which are positive at EBIT level and it would be debt-free or almost debt-free anyway after the Sale and leaseback ). - So paper transaction will be done and now Bhushan Steel's debt is gone, Bank's have a new loan backed by cash-flows and structured in a proper way. in this scenario wouldn't the assets of Bhushan steel , already be pledged to the Banks ? Can it be used by the SPV as collateral once again ?
Kalia_Test Posted June 5, 2015 Author Posted June 5, 2015 in this scenario wouldn't the assets of Bhushan steel , already be pledged to the Banks ? Can it be used by the SPV as collateral once again ? Yes. It can through a structured scheme of arrangement. Initially there will be a MoU or Letter of Intent and that can be the basis of negotiation with lenders. Practically, it is like lenders forcing Bhushan Steel to sell its assets and pay their money back ( which they immediately lent back to the SPV ). We have examples in Indian context too - mostly in Real Estate deals/Airlines but some in Corporates too ( Any Asset heavy Industry qualifies like Infra,etc) Last year, Air India did it. Pls note that the SPV need not be created by Bhushan Steel. There can be a strategic investor identified by lenders themselves. Many annuity based Insurance Companies also would be interested and so can some sovereign wealth funds. http://www.livemint.com/Companies/VbDZ5j0cykzCGrTxTNoESL/Air-India-in-600-mn-deal-for-sale-and-leaseback-of-five-Dre.html Mumbai: State-run Air India Ltd, which has a debt of Rs.40,000 crore, has struck a deal with German lender Deutsche Bank AG and the UK’s Investec Bank for selling and leasing back five Boeing B787 Dreamliner planes in a $600 million deal. According to two Air India executives, who asked not to be identified, Deutsche Bank will buy four planes while Investec will buy one. Emails sent on Monday to the two lenders remained unanswered at the time of going to press. A sale and leaseback is common in the airline business. Airlines sell their planes to a lender, a process that helps them generate revenue, and then lease the same planes for a fee. “Sale and leaseback of planes will give us upfront liquidity. Besides liquidity, the balance sheet of airline will also look strong,†said one of the Air India executives. This is not the first time Air India is sealing such a deal with Deutsche Bank and Investec. In the past, Deutsche Bank has bought three Dreamliner planes from Air India while Investec had bought four. Air India is planning to execute a sale and leaseback of five more Dreamliners. Air India will post an operating loss of Rs.2,100 crore and a net loss of Rs.3,900 crore for the year ended 31 March, Mint reported on 17 March. Air India is also leasing at least 30 planes to compete with domestic and international rivals. The state-owned airline has leased five Airbus A320 planes from China Aircraft Leasing Group Holdings Ltd for domestic operations with a single-class configuration, said the first Air India executive. China Aircraft Leasing did not reply to emails seeking comment. Air India has plans to bring in another 17 Airbus A320 aircraft to boost its domestic operations.
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