Supratim Sarkar, head of structured finance at SBI Capital Markets Ltd., receives as many as three requests every week from companies to restructure debt. He’s so busy he rejects more than half of them.
SBI Capital, a unit of State Bank of India, the nation’s largest bank, may revamp 500 billion rupees ($9.1 billion) in loans in the year ending March 31. That’s a 15-fold jump from 33 billion rupees of debt the firm helped renegotiate two years ago, he said in an interview in Mumbai. The investment bank did not revamp any loans in the 12 months to March 31, 2010.
Restructured debt, which give companies a moratorium on payments, longer maturities or lower interest rates to avoid defaults, more than doubled in the year ended March 2012 to 2.2 trillion rupees, according to Moody’s Investors Service, as an economic slowdown and the highest funding costs among the major Asian economies forced companies including Kingfisher Airlines Ltd. to delay repaying debt. Borrowings more than doubled in 2010 when rates were near a record low of 4.75 percent.
“We have come full circle from the party days of 2009-10, when advisory firms were arranging big-tickets loans, loans the borrowers had no means of servicing and for which they did not have the proper collateral,” said Saurabh Mukherjea, head of equities at Mumbai brokerage Ambit Holdings Pvt. “Excesses of the years gone by are extracting a price.”
Companies borrowed $52.5 billion in the year ended March 31, 2010, compared with $21.3 billion in the previous financial year, data compiled by Bloomberg show. The figure surged to $82.1 billion in the 12 months ended March 31, 2011, the data show. India’s benchmark stock index crashed 25 percent in 2011, the biggest drop in three years, prompting companies to tap the debt market.
SBI Capital has so far helped mobile-phone tower provider GTL Infrastructure Ltd. and Bharti Shipyard Ltd. ease their debt burden. IDBI Capital Market Services Ltd., a unit of state-run IDBI Bank Ltd., is also advising as many as 35 companies, said Managing Director Abhay L. Bongirwar. GTL exchanged 35 percent of its $319 million of convertible debt for shares and swapped the remaining for fresh convertible bonds due 2017.
In 2010, SBI Capital helped Kingfisher controlled by liquor tycoon Vijay Mallya, revamp 77.2 billion rupees of debt. In October, Kingfisher grounded planes amid call by lenders for Mallya to raise at least $1 billion of fresh funds. The company’s operating license lapsed yesterday.
Wind-turbine maker Suzlon Energy Ltd. defaulted on $209 million of debt in October, the biggest on convertible bonds by an Indian company. Suzlon was among nine local companies that defaulted on a combined $777 million of convertible debt last year, data compiled by Bloomberg show.
Kingfisher’s shares have plunged 95 percent from a record on Dec. 16, 2007. They rose 2.8 percent to 14.85 rupees at 9:57 a.m. in Mumbai. GTL Infrastructure gained 2 percent to 4.18 rupees, while Suzlon was unchanged at 18.8 rupees.
Indian companies’ gross non-performing loans totaled 1.4 trillion rupees on March 31, up 46 percent from a year earlier, Moody’s said in Nov. 5 report. Restructured debt accounted for 4.7 percent of gross loans, compared with 3 percent in 2010, according to the report.
The increase in the volume of restructured debt is luring financial-services companies to the space, with advisers also offering to arrange working capital for distressed borrowers in addition to securing better terms for their loans, said Sumedha Fiscal Services Ltd.’s Director Rajesh Kumar Gupta.
Kolkata-based Sumedha, which had revenue of 107 million rupees in the year ended March 31, is working on a dozen proposals and has seen a 50 percent jump in in earnings from the segment in the past 18 months, according to Gupta. Centrum Capital Ltd. is working on four cases, having advised eight companies since entering this business a year ago, said adviser Shashi Kalloor.
“There is a huge ability to add value in terms of innovative structures,” said IDBI Caps’ Bongirwar. “The most important element is to convince lenders that other than timing and environment, there was nothing wrong with the company.”
Competition is intensifying as brokers such as Edelweiss Financial Services Ltd., which posted its lowest profit since listing in 2007 in the September quarter, enter the segment. Some consultants are slashing fees, said Kalloor, squeezing margin in a business that deals with cash-strapped companies with little or no money to pay their lenders.
Still, with interest rates in Asia’s third-largest economy set to drop, the debt-restructuring business may slow. Reserve Bank of India Governor Duvvuri Subbarao on Dec. 18 signaled higher odds of an interest-rate cut after a record 13 increases since March 2010. The central bank kept the rate at 8 percent on Dec. 18.
“It is a relationship building exercise,” SBI’s Sarkar said. “We help them out in distress times and they will hopefully remember us in the good times.”