GETTING CLOSER TO A DEAL Reliance Industries infuses Rs. 500 crore into bankrupt co while State Bank of India, ICICI Bank & IndusInd Bank plan to fund the remaining Rs. 4,550 cr.
Lenders to Alok Industries expect to recover Rs. 5,050 crore from the sale of the bankrupt company to Reliance Industries (RIL) early next week after India’s most valued conglomerate infused the promised Rs. 500-crore equity into the debt-laden borrower. State Bank of India, ICICI Bank and IndusInd Bank are funding the rest of the Rs. 4,550-crore acquisition cost through a term loan that will be syndicated to other banks later, four people familiar with the deal said.
SBI is lending Rs. 1,800 crore, while IndusInd Bank and ICICI Bank are lending about Rs. 1,400 crore each for a loan to Alok, which will be backed by RIL, these people said. “Now that the equity has come, we will move ahead for the documentation on Monday and expect to close this deal by Tuesday when the money should come in,” said one of the people cited above.
The closure was delayed since March 2019 when the Ahmedabad bench of the National Company Law Tribunal (NCLT) had approved the sole RIL-JM Financial ARC bid to take over Alok.
Banks had sanctioned the loans some time ago but were waiting for RIL to infuse equity into the company first. In a notice to the stock exchanges on Saturday, RIL said that it has taken a 37.7% stake in Alok, and could raise the holding further through optionally convertible preference shares (OCPS). RIL has infused Rs. 250 crore for the 37.7% stake while the remaining Rs. 250 crore has been put through OCPS issued at 9%, RIL said in the notice.
RIL is also borrowing for this acquisition through Alok for which it has given some supply guarantees. “These guarantees will enhance the company’s rating from default grade to about AA+ which will reduce provisions for banks. We expect the rating action to come soon and so are very comfortable giving this loan. After the enhanced ratings we plan to down sell the loans to other banks,” said the second person cited above.
SBI, the lead bank, had initiated insolvency proceedings against Alok in June 2017. It was among the 12 accounts with outstanding loans greater than Rs. 5,000 crore that the RBI asked lenders to refer to the NCLT process. Silvassa based Alok Industries is a fully integrated textile company with a presence in the cotton and polyester segments.
The company owes lenders a total of Rs. 30,000 crore, which means banks are taking a collective haircut of 83%. The majority of the Rs. 30,000-crore dues are to financial creditors, with the company owing Rs. 624 crore to operational creditors.
“RIL has bought the company for less than 20 cents and despite the year long delay faced by banks, it makes sense because of the likely rating upgrade and the fact that this company is going into hands that can manage the business well,” said a third person cited above.
