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Sunday, Dec 15, 2002

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Banks scuttle SPIC plan for FRN buyback

M. Ramesh

CHENNAI, Dec. 14

A CONSORTIUM of bankers has blocked a proposal from Southern Petrochemical Industries Corporation (SPIC) for buying back a part of its Floating Rate Notes (FRN).

SPIC had raised $120 million in 1996 through an FRN (bonds whose rates are linked to a benchmark rate such as the LIBOR) issue. The company has defaulted twice on interest or principal payment.

But since the FRNs are quoting at a discount, SPIC had thought it a good opportunity to redeem at least a part of it, from the market, so that its interest outgo could be shrunk. Accordingly, the company had placed a proposal before the consortium for redeeming 5 per cent of the FRN, that is, bonds of the value of $6 million, approximately Rs 30 crore.

However, the banks would have none of it. "No FRN buyback has been proposed to be permitted," sources in the consortium of bankers told Business Line.

On the other hand, the consortium (led by Indian Bank) has demanded a personal guarantee from Mr Ashwin Muthiah, SPIC's Vice-Chairman. Earlier this year, the banks had secured the personal guarantee of the Mr A.C. Muthiah, the company's Chairman.

The sources say Mr Ashwin Muthiah told the bankers that he would "think it over and revert". Also, pointing out that his father had given his personal guarantee, Mr Ashwin Muthiah requested the bankers not to insist on his own personal guarantee as a pre-condition for releasing the subsidy dues.

SPIC was to get subsidy dues of about Rs 84 crore. These dues would be received in the company's escrow account with Indian Bank. The money would not be allowed to be withdrawn by the company except with the permission of the bankers.

It is understood from the sources in various banks that SPIC recently received half of the subsidy dues, or Rs 42 crore. The bankers wanted to divide this money among themselves in part retirement of SPIC's dues, but upon the company's request, agreed to let the company utilise it for working capital purposes, the sources said.

SPIC had its working capital loans restructured by the consortium of bankers, at the beginning of the current year. The company is pursuing a similar restructure effort with the term lenders, led by IDBI.

Informed sources have told Business Line that IDBI now intends to "trigger the CDR mechanism"— which means that a composite restructure plan will have to be worked out for both working capital and term loans together. (Under the RBI's scheme of Corporate Debt Restructuring, any of the lenders to a company can "trigger" a CDR discussion.

The lender can do so by producing a `flash report' on the status of the borrower, and putting forward a debt restructure proposal. The proposal will go through if at least 75 per cent of the lenders (by value) agree to it within 90 days. In that case, it will be binding on the other 25 per cent of the lenders too.)

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