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Aug 08, 2018, 13:35
SBI offers Bombay Rayon account to ARCs

Indian’s largest public sector bank, state bank of India has appealed bids from Asset Reconstruction Companies (ARC) to offload a loan of Rs. 2,200 crore given to Bombay Rayon Fashions after the garment maker evaded on repayments. The largest lender in the country has retained a reserve price of Rs.900 crore, which is nearly 40% of the total loan.


The Mumbai – based company, Bombay Rayon Fashions was instructed to determine a resolution plan before the end of August or else the company could be dragged down by the bank to the bankruptcy court. Banks have an exposure of about Rs 6,000 crore to the company.


 As of June 2018, the banks collectively hold 55% stake in the apparel-making company, with State Bank of India acquiring the highest equity stake of 29%, followed by Axis bank at 8%, the Union Bank of India holds 3.3% while other banks with the minor stakes comprises of Punjab National Bank, Bank of India, Allahabad Bank and Central Bank of India. The Agarwal family, the promoters, acquire 38.3% stake in the company.


State bank of India made assorted attempts to rejuvenate the company by proposing the restructuring of its debt. Under the corporate debt restructuring scheme, SBI had previously converted the company’s debt into equity when their loan was restructured.


As of March 2017, the lender of the apparel marker held 28% stake on converting to Rs 800 crore from debt to equity. In the next month, the lenders led by State Bank of India decided to implement the Scheme for Sustainable Structuring of Stressed Asset or S4A, wherein they might hike their stake on converting unsustainable debt into equity to 55%.


The Scheme for Sustainable Structuring of Stressed Asset or S4A was launched by the Reserve Bank of India on 13th June 2016, the scheme aims at deepening the financial restructuring of large debt projects permitting the banks to acquire equity of the stressed projects. The main objective of the scheme is to convert debt into equity.  


In Q1FY18, the board of Bombay Rayon under the debt recast norm permitted the issue of 12.6 crore equity shares on preferential basis and up to Rs 410 crore worth of convertible securities to its lenders. The board further sanctioned the issue of 48.2 lakh equity shares on preferential basis to its lenders under the existing corporate debt restructuring package of the company.


The Reserve Bank of India eliminated all the debt restructuring schemes like the S4A and strategic debt restructuring scheme (SDR), on 12th February 2018, while appealing the banks to settle the stressed loans under these schemes by the end of August 2018, failing to do so the banks will have to refer the defaulters to the bankruptcy court. Two fashion brands - Reid and, Taylor and Provogue – have already encountered the proceedings of the bankruptcy court.


The State Bank of India has announced that they are willing to approve a combination of security receipts and cash in exchange for the loan. The bank further declared that it had collaterals of Rs. 190.8 crore. The auction is due on 20th August 2018.


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