Banks nod Essar Oil's CDR exit but proposal to be reworked

Saikat Das
moneycontrol.com

The core group of the CDR (Corporate Debt Restructuring) cell has approved the exit of Essar Oil from the forum in its meeting held on June 29. However, the lenders disagreed with the proposal of exit submitted by the cell. Accordingly, it is re-working the terms and conditions of the exit, sources with the direct knowledge of development told moneycontrol.com.

CDR cell is the platform to resolve loan default cases jointly with all lenders of a consortium. Restructuring is the process when a borrower fails to make timely repayment of loans and approaches its lenders to dilute its original terms under which the loan was sanctioned.

"Even though lenders agreed to allow Essar Oil's exit, they are clearly not comfortable with the CDR cell's proposal for settlement. Banks are not sure whether they will gain or lose by consenting on this proposal. They need more clarity on the 'recompensed amount', " said a senior banker on condition of anonymity.

The debt restructuring case for Essar Oil was referred to CDR cell way back in 2003-04 for an amount of around Rs 2,300 crore by a consortium of 11-12 lenders including ICICI Bank, Punjab National Bank, State Bank of India and others.

Later, the company gradually came out of the woods. In between May, 2008; and February, 2011; it had expanded capacity from 10-16 metric ton per annum (MTPA) to 20 MTPA. This requires the company to pay back the concession it had received from the lenders in the crisis period under the restructuring scheme. That's is why it is called 'recompensed amount'.

For example, a company may be repaying a loan at 10% instead of 15% under a restructuring scheme. With the company's fortune coming back, it has to reverse back the sacrifice made by banks.

According to a source, the amount has been pegged at around Rs 550 crore. However, the Essar Oil has agreed to prepay a loan, which will be due in 2026. The recompensed amount is proposed to be adjusted with the prepayment. That is where, according to a source, banks are unable to determine the future consequences in terms of profitability.

Meanwhile, the Gujarat High Court slapped a tax liability of Rs 6,300 crore on the company. This too added to the delay of exit proposal.

The core group of CDR cell includes IDBI Bank, ICICI Bank, Punjab National Bank, SBI, Bank of Baroda, and Bank of India. It met after a gap of two years but now plans to meet every quarter.

saikat.das@network18online.com