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    India's bad bank NARCL proposes to buy 5 distressed loan accounts

    Synopsis

    The government-owned asset reconstruction company (ARC) made the proposal in a recent letter to lenders, they said, adding that the fifth company was Rainbow Papers.

    bad bankAgencies
    The government-promoted bad bank National Asset Reconstruction Company of India Ltd (NARCL) last week offered to acquire five distressed loan accounts, including those of Future Retail and GTL Ltd, said two people aware of the development. NARCL has also proposed to purchase the debt of two engineering procurement and construction companies, McNally Bharat Engineering and Consolidated Construction Co. Ltd (CCCL), the people said.

    The government-owned asset reconstruction company (ARC) made the proposal in a recent letter to lenders, they said, adding that the fifth company was Rainbow Papers.

    NARCL will make a binding offer only after it receives written consent from the lenders, the people said. In the past, the government-promoted ARC has indicated that it will make binding offers only if 75% of lenders by value agree, said one of the persons cited above. This would enable NARCL to control the resolution process, the same person said. In the case of an out-of-court resolution, a proposal can be implemented only if 75% of lenders agree to the terms.

    A resolution in the bankruptcy court requires approval by 66% of the verified lenders.

    Among the five accounts proposed last week, Kishore Biyani-promoted Future Retail, McNally Bharat Engineering and CCCL are undergoing insolvency proceedings. Among these, Future Retail’s resolution professional (RP) has admitted the highest claim of Rs 17,511 crore from financial creditors. McNally Bharat’s RP has admitted creditors’ claims worth Rs 4,840 crore, while in the case of CCCL, lenders have claimed Rs 2,693 crore. This is the second attempt to acquire Rainbow Papers’ debt. Lenders had rejected NARCL’s offer of 10% recovery for the company having outstanding loans of Rs 1,136 crore. GTL is a telecom infrastructure company with a debt of Rs 4,866 crore.

    Last month, NARCL proposed acquiring 17 accounts aggregating Rs 93,249 crore loans, including five Future Group companies and twin Srei Group accounts, as reported by ET on July 18. The five Future Group accounts included Future Retail, Future Enterprises, Future Lifestyle Fashions Ltd, Future Supply Chain Solutions and Future Consumers.

    NARCL proposes to offer 15% of the consideration in cash, while the remaining 85% would be in the form of security receipts, said the people cited above. The biggest attraction of selling loans to NARCL is that the government guarantees these security receipts if the ARC fails to recover the dues at the end of five years.

    NARCL hasn’t been able to strike any deals due to a mismatch in the pricing of loans and lack of clarity on how the government guarantee would work. Lenders are seeking clarity on terms under which the guarantee can be invoked to meet shortfalls in recovery.

    The bad bank operates on a dual structure — NARCL will be the principal company acquiring the distressed loans and India Debt Resolution Co Ltd (IDRCL) will be its agent that works on resolutions. Although the ARC has been operational for a year now, it has yet to acquire any bank loans.

    The bad bank is close to a deal, considering that NARCL and IDRCL are now led by industry veterans, the people said. NARCL is headed by former State Bank of India deputy managing director Natrajan Sunder while IDRCL is headed by Avinash Kulkarni, former CEO of India Resurgent Fund, a Bain Capital-Piramal Enterprises promoted ARC. NARCL has also hired senior executives from Edelweiss ARC, CFM ARC and Arcil.


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