Lanco lenders to acquire Teesta Hydro Power

Lenders to Lanco Teesta Hydro Power would convert part of their Rs 2,400-crore loans to the company into 51% equity after the Reserve Bank of India (RBI) allowed such conversions.

The measure allows bankers to take steps against truant borrowers. The new rule would help them find buyers for stressed assets, reported the Economic Times.

Lanco Teesta Hydro Power is fully held by Lanco InfraTech. Lanco Teesta's project, cost for the 500-MW hydro power project located in Sikkim, is about Rs 3,283 crore.

India's banks face a burgeoning debt burden that's often cited as a key risk to the country's financial health.

A senior bank official said on the condition of anonymity: "Lenders have authorised the lead bank to start the process of acquiring a majority stake in the company and looking for a buyer."

The official said: "Debt would be converted only to the extent of banks acquiring 51% shareholding," he said.

Strategic Debt Restructuring (SDR) gives banks controlling power
This will be the second such instance of a bank exercising its right to acquire a majority stake in an ailing company. A fortnight ago, banks had planned to take control of Electrosteel Steels, which could not repay its dues.

Banks have lent the company about Rs 9,500 crore. The SDR programme by RBI allows banks to acquire a controlling 51% in a financially troubled company by converting part of its debt into equity.

A consortium of lenders, including some large private and public sector banks, agreed to convert part of their loans to Lanco Teesta into equity at a recent meeting. Senior executives at a large commercial bank said that close to Rs 780 crore will be converted into equity under the capital market regulator's formula for this.

It is important to know that as per the SDR scheme, a bank can convert its debt into equity only after the project has failed to meet some critical milestones.

Experts are of the opinion that stake conversion could saddle banks with assets they have no ability to manage unless these are disposed of quickly. Others say drastic measures are needed to resolve a situation that's worsening.

"There has been a delay in completing project and lenders are fearing there could be a cost overrun. This has prompted lenders to act," said a senior bank executive.

Banks are taking such measures to curb the sharp spike in dodgy loans. ETIG data shows that in the past two years, there has been a 158% jump in loans where borrowers have not paid dues. Gross non-performing assets stood at Rs 3.1 lakh crore in FY15 against Rs 1.85 lakh crore in FY13 for all listed banks.

(Image: Indiatimes)