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The State Bank of India (SBI) has cut its losses in Bombay Rayon Fashions (BRFL), selling its Rs 2,261 crore exposure to JM Financial Asset Reconstruction Company (ARC) for Rs 900 crore, according to a report by the Financial Express. The state-owned lender will take a 60 percent haircut on the loan.
It is hopeful of making good its 29 percent equity stake in the company. The lender has received Rs 840 crore in cash, while the residual Rs 60 crore is in the form of security receipts that can be redeemed over a three-year period.
Even after completing the sale of assets linked to its exposure in Bombay Rayon, SBI, in the capacity of lead lender of the consortium, is on the lookout for bids to cover the exposure of other banks in the cash-strapped company. Bank of India has an exposure of Rs 127 crore, while Karnataka Bank and Allahabad Bank have lent Bombay Rayon Rs 13 crore and Rs 108 crore, respectively.
The cumulative debt of BRFL has been reorganised under the government’s corporate debt restructuring scheme. In addition to SBI, two other lenders hold equity stake in the textile company. Lenders are awaiting the finalisation of the inter-creditor agreement (ICA) guidelines before taking that route in resolving their bad loans.
In the absence of clarity on the ICA, SBI has initiated sale of exposure through the Swiss challenge method on the request of three banks that were a part of the consortium of lenders. The Swiss challenge method is a process of awarding contracts, whereby any entity with valid credentials can submit a proposal, which in turn can be improved by other parties to beat the earlier bid.
The 14-day window for receiving bids for BRFL will open on Monday. The news daily reported that 13 expressions of interest were received. However, the highly fragmented pattern of shareholding could deter new promoters from acquiring stake.
Allahabad Bank and Karnataka Bank are hopeful of making a 100 percent cash recovery.
If the consortium fails to find new promoters to take on its debt in BRFL within the prescribed window, the stressed company will have to be referred to the National Company Law Tribunal as per the norms specified in the Insolvency and Bankruptcy Code.
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