The Hindu Business Line : 50 pc equity write-down in Pennar debt recast scheme

THE lenders and members of the Corporate Debt Restructuring (CDR) Forum led by the Industrial Development Bank of India (IDBI) have cleared a debt revamp scheme for Pennar Industries Ltd (PIL), the Hyderabad-based ailing cold rolled steel strips manufacturer that suffered complete erosion of net worth and was referred to the BIFR.

The PIL Executive Director, Mr Ch. Anantha Reddy, told Business Line that the CDR Forum has decided to waive the entire amount of penal interest, compound interest and liquidated damages on a debt burden of around Rs 260 crore, benefiting the company to the tune of around Rs 20 crore per annum.

The forum has directed the company to write down its equity by 50 per cent, which means the company has to seek the consent of its shareholders to write down the current equity of Rs 17 crore to Rs 8.5 crore. The reduced equity of Rs 8.5 crore would have to be converted into 0.01 per cent cumulative redeemable preference shares repayable in the year 2013-14 to 2015-16.

The forum has also decided to fund the simple interest accrued and due on July 1, 2002 as well as between July 1, 2002 and March 31, 2004. Further, an amount of Rs 14.83 crore of the funded interest would be converted into equity by the financial institutions. The balance amount of funded interest would be converted into redeemable preference shares or funded interest term loan.

"The redeemable preference shares and funded interest term loan of financial institutions and funded interest term loan of banks and debenture holders will carry zero interest till repayment in 10 quarterly instalments from October 1, 2013 to January 1, 2016," Mr Anantha Reddy said.

The forum has allowed the slashing of interest rate on term loans and working capital term loans to nine per cent from the existing level of 13.5 per cent. The term loans and working capital term loans would have to be repaid in 28 quarterly instalments from 2006-07 to 2011-12.

Some of the lenders in the forum have opted for early exit in three years with 60 per cent of the principal outstanding as one time settlement (OTS) amount as on July 1, 2002. While the principal outstanding works out to around Rs 50 crore, the banks opted for early exit include Canara Bank, Andhra Bank, State Bank of Hyderabad, IDBI and Bank of Bahrain and Kuwait. The OTS amount would have to be paid with 10 per cent as down payment and balance in 36 monthly instalments without interest, Mr Reddy said.

Further, in terms of the CDR package, the preference shareholders would have the option to exit early in three years or to restructure the shares payable from 2006 to 2016.

"With the major benefits of early exit, conversion of debt into equity, interest funding and slash in interest, we expect the CDR scheme to enable us turn the company's networth completely positive at the earliest, may within a period of five years," Mr Reddy said.