Mumbai: Edelweiss ARC, Indias largest asset reconstruction company, plans to acquire stressed loans of companies, including Essar Steel from two private banks — Jammu and Kashmir Bank (J&K Bank) and Lakshmi Vilas Bank (LVB) — in an all-cash deal which will enable both the lenders to boost their earnings and lower the share of bad loans.
J&K Bank is in the final stages of concluding a deal to sell loans extended to Essar Steel, Odisha Slurry Pipeline Infrastructure, Bhushan Steel and Bhushan Power, while Lakshmi Vilas Bank is expected to sell only Essar Steel loans, said two senior executives aware of the development.
As per initial discussions, the stressed loans will be sold on full cash basis at a discount of about 40 per cent, they said.
All four companies are facing bankruptcy proceedings and have a combined debt of Rs 1.5 lakh crore. The development comes at a time when the lenders are close to finalising the resolution plan for these stressed companies.
“The ARC and the two banks are in the final stage of signing a deal. If the deal goes through by this month-end, it will mean a sharp reduction in bad loans for both the banks,” said an executive, who did not wish to be identified.
J&K Bank plans to sell a total of Rs 1,662 crore of loans given to the four companies. This includes loans of Rs 613 crore to Essar Steel, Rs 602 crore to Bhushan Steel, Rs 409 crore to Bhushan Power and Rs 37 crore to Odisha Slurry Pipeline.
Similarly, executives said, Lakshmi Vilas Bank is likely to sell its loans of Rs 137 crore given to Essar Steel.
The loans will be sold at discounts ranging between 38 per cent and 45 per cent, according to the executives.
As per the Reserve Bank of Indias rule, banks have to set aside 50 per cent of loans as provision for companies that are referred to the bankruptcy court and a full 100 per cent provision in case a company heads for liquidation. The entire amount that is provided for these companies will be reversed for J&K Bank and Lakshmi Vilas Bank in the March 2018 quarter.
Last week, IDBI Bank sold $385 million foreign currency loans extended to Essar Steel to Deutsche Bank at a 38 per cent haircut. The deal would fetch IDBI Bank Rs 1,600 crore, which will be reflected in this years earnings.
While the bidding for Bhushan Power and Bhushan Steel has concluded, the lenders have decided to opt for a second round of bidding for Essar Steel since both the bids that they received, from Numetal and ArcelorMittal, were deemed ineligible.
The lenders have awarded Bhushan Steel to Tata Steel while Bhushan Power is mired in controversy after Liberty House moved the court stating that its bid should be considered eligible even as it submitted the bid a few days after the deadline for binding bids was over.
The banks have sold the loans over concerns that even as these stressed companies have received good offers, resolutions may take a long time due to litigations.