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Vishal Retail CDR stands at Rs 730 crore

Published on Mon, Nov 23, 2009 at 13:19 | Source : CNBC-TV18

Updated at Tue, Nov 24, 2009 at 11:13

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Ambeek Khemka, Group President, Vishal Retail

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Vishal Retail's corporate debt restructuring (CDR) package seems to have come through. The stock is up 7.5% at Rs 83. In an Interview with CNBC-TV18, Ambeek Khemka, Group President of Vishal Retail discusses it.

Here is a verbatim transcript of an exclusive interview with Ambeek Khemka on CNBC-TV18. Also watch the accompanying video.

Q: For what exactly have you received an in principle approval? What would it entail in terms of your financials?

A: The CDR proposal, which was submitted to the CDR AG committee by all the lenders have been admitted. We have 60 days to work out the final details of the proposal and come out with the comprehensive final proposal. We will then have another 120 days to implement the same. With the admittance of the proposal, the lenders have reported their faith in the business model of the company. They are very sure that the company will be in a position to service its debt. However, that would be some kind of sacrifices which the lenders might have to make. The company would have to ensure that the business is running by bringing down the financial cost. So the admittance of the proposal is a very good step for the company.

Q: You have nearly Rs 100 crore of interest payments. If this proposal was to be implemented in 60 plus 120 days, would you get a moratorium on that entire amount for principal and interest payments?

A: Moratorium is built into the proposal. However, the tenure with the moratorium is yet to be thrashed out amongst all the lenders for the secured and the unsecured because we are trying to address the entire debt together. We expect the CDR to be in place. We also want the finance charges to come down by half, which is in the best interest of the company. This is because the financial charge is Rs 100 crore per annum and it has to come down by half. We will be certainly having a moratorium on principal and the interest for a couple of years now.

Q: Is the size of the CDR package, which has been admitted though, Rs 730 crore? What is the portion of secured debt for you right now?

A: The size certainly is Rs 730 crore. We have three secured lenders. The secured debt would stand approximately at Rs 350 crore.

Q: I believe you have also approved the merger of Vishal Water World with yourself. Can you tell us a little bit about the financials of Vishal Water World?

A: Vishal Water World is an amusement and water park project based in Kolkata. It is one of the promoter companies. The idea of merger is to try to optimize the resources of both the companies together and also to utilize the company assets. There is a huge land bank in Vishal Water World. It has already collateralized to the secured lenders.

Therefore, by getting the water park and the entire project into Vishal Retail, the financials will look much better since the land bank is valued at a good price. Going forward with the permission of the lenders, we would be disposing off the land and reducing our debt. This is one of the positive steps taken by us. The promoter holding would rise with the merger. However, it will be within the 75% bracket which is laid down as a norm by Securities and Exchange Board of India (SEBI).

Q: What is the value of this land which can be monetized to retire debt? What price are the promoters letting go of this company? What are the merger details?

A: The swap ratio decided is on an NAV basis and it is 1:10, which means for every one share of Vishal Water World, ten shares of Vishal Retail will be given. Hence, the promoter would be getting 66 lakh shares in return for a stake of Vishal Water World. However, it will be well within the 75% holding norm of the promoter in its entirety for Vishal Retail.

The land value should be around Rs 60 crore. If the land is sold with that amount, a considerable amount of debt will be reduced.

Q: What concessions would the lenders seek from Vishal Retail in return of admitting and then executing this CDR?

A: The promoter has to bring in fresh equity and money into the company. The company may have to bring in a strategic investor if need be in the best interest of the company and if the promoter does not bring the sufficient amount of money which is required. As far as the sacrifice is concerned, the promoter would be pledge his equity to the lenders and ensure that the business is running. Probably, we have to ensure there is growth in the company and we are able to repay that debt on the long run.

Q: We believe that Vishal Retail also owes almost Rs 150 crore in two mutual funds which are not participating in the CDR process. What will be the likely road in terms of resolving that?

A: It is not compulsory for them to participate in CDR. However, as an option they can certainly participate in CDR. Since the proposal has been admitted now, the next phase would be to get all the other non-CDR members on board and make them realize that the company, which has got Rs 100 crore turnover average on monthly basis, has now got a lot of business sense in the company. The company has the capability of repaying the debt. The CDR AG committee has admitted the proposal just because the business model is viable and strong. Hence, I am sure the other lenders, in the best interest of the company and the 10,000 families attached to it, would take a rationale decision of joining the CDR and if not join the CDR then would follow what is led out in the CDR final proposal. If that happens, then the company would have no pressure from any point of view.

Q: You had earlier indicated that the company was open to even diluting equity and raising money via the equity road. Is that still an option or once the CDR package is underway, will you not be going down the equity route in terms of raising money?

A: The promoter has to bring in fresh money. So maybe he also dilutes his equity and gets the money which is required. With this reverse merger, the equity holding which will go up from the present 63% to probably 74%, he is still the single largest shareholder. So he has got a lot of leverage to dilute his equity and raise money. Therefore, I don't see any problem on that front. The promoter would take a rational decision again in the best interest of the company and the employees who have been associated with them for so many years.

Q: Instead of going through a merger of Vishal Water World with Vishal Retail, why could the promoters have not sold the land and then infuse that equity or cash into this company?

a: That could have been done but then the stake would not have risen to that level because there is a ceiling of 5% again and is already issued warrants to himself for that effect. Hence, he cannot raise his holding 5% in a single financial year. So that is one of the reasons why we have adopted this route rather than simply selling the land off and bring the money directly into the company.