Banks Plan Takeover of Key Bal­larpur Unit

Pro­pose SDR of unit that ac­counts for 85% of par­ent’s op profit

The Economic Times - - Companies: Pursuit Of Profit - Mo­hit.Bhalla @times­

New Delhi: Lenders to pa­per maker Bal­larpur In­dus­tries (BILT) have pro­posed to in­voke strate­gic debt re­struc­tur­ing (SDR) and seize con­trol of the flag­ship unit of the com­pany that con­trib­utes as much as 85% of the op­er­at­ing prof­its of its pub­licly traded par­ent, said of­fi­cials in the know.

A con­sor­tium of lenders led by Axis Bank have pro­posed to in­voke the SDR at BILT Graphic Pa­per Prod­ucts, a step-down sub­sidiary of BILT, which has loans amount­ing to over .₹ 4,000 crore as the pa­per man­u­fac­turer strug­gles to op­er­ate man­u­fac­tur­ing plants due to a work­ing cap­i­tal cri­sis.

The SDR, if ap­proved, could give the lender con­sor­tium that in­cludes ICICI Bank, Stan­dard Char­tered, Rabo, Gold­man Sachs and In­dusInd Bank among oth­ers a ma­jor­ity stake in the com­pany. Axis Bank leads the con­sor­tium. The pro­posal for the SDR was dis­cussed at a meet­ing of the joint lenders fo­rum (JLF) in the last week of De­cem­ber and sub­se­quently at a meet­ing of the board of di­rec­tors of BILT on Wed­nes­day, said peo­ple di­rectly aware of the mat­ter. A spokesper­son for BILT did not re­spond to emailed queries till press-time, while a spokesper­son for Axis Bank de­clined to com­ment when con­tacted by ET.

The Re­serve Bank of In­dia’s guide­lines for strate­gic debt re­struc­tur­ing stip­u­late that 75% of cred­i­tors by value and 60% of cred­i­tors by num­ber must ap­prove an SDR be­fore it is in­voked. The guide­lines fur­ther state that lenders may con­vert a part or the en­tire por­tion of their debt into eq­uity of at least 51% in the bor­rower com­pany and that the JLF lenders should di­vest their hold­ings as soon as pos­si­ble. The guide­lines al­low for a bor­rower ac­count to be up­graded to a “stan­dard” as­set post change of con­trol.

BILT has a con­sol­i­dated debt es­ti­mated to be in ex­cess of .₹ 6,000 crore. BILT Graphic Pa­per Prod­ucts owns four of the six pa­per man­u­fac­tur­ing units housed in the par­ent com­pany, which are lo­cated at Bal­larpur, Bhig­wan and Ashti in Ma­ha­rash­tra and at Sewa in Odisha. Two of the four units have cur­rently shut down pro­duc­tion while the other two are op­er­at­ing at 30% of their ca­pac­ity due to fund con­straints. In Septem­ber 2015, BILT — In­dia's largest maker of writ­ing and print­ing pa­per — had an­nounced that its step­down sub­sidiary, Bal­larpur Pa­per Hold­ings (BPH), had en­tered into a de­fin­i­tive share sale agree­ment for sell­ing its 98.1% eq­uity in Sabah For­est In­dus­tries, Malaysia (SFI), to Pan­dawa Sakti (Sabah), the arm of a lo­cal busi­ness group Pan­dawa Sakti. Since then, the deal date has been post­poned thrice and fi­nally fell through. The com­pany had ex­pected to re­ceive a net $350 mil­lion from the di­vest­ment to help prune its lever­age. More re­cently, it has also dis­cussed a sale of two of its units with ri­val JK Pa­per and is also said to be in talks with Gold­man Sachs and Edel­weiss for short term loans.

In a note to share­hold­ers ac-

com­pa­ny­ing its annual re­port for 2016, BILT chair­man Gau­tam Tha­par said that de­spite “a fairly rapid in­crease in de­mand for pa­per across most ma­jor emerg­ing mar­kets, there ex­ists sub­stan­tial global ex­cess ca­pac­ity in pulp as well as print­ing and writ­ing pa­per”. He fur­ther stated “the in­ter­est cost on funds that were ear­lier bor­rowed to mod­ernise plants and equip­ment to pro­duce greater through­put of higher grades of value added prod­ucts has turned out to be too much to bear vis-à-vis your com­pany’s op­er­at­ing prof­its”.

BILT re­ported con­sol­i­dated rev­enues of ap­prox­i­mately .₹ 1800 crore for the nine months ended De­cem­ber 31, 2016, and losses of ap­prox­i­mately .₹ 1200 crore for the same pe­riod, due to ris­ing debt ser­vic­ing obli­ga­tions.

In a note cir­cu­lated on Jan­uary 30, rat­ings agency Fitch down­graded BILT’s rat­ings to ‘CCC’ from ‘B-’, a rat­ing that is just two notches above de­fault. A rat­ing of ‘C’ is as­cribed to a de­faulter. “In de­riv­ing BILT's 'CCC' rat­ing, we have as­signed par­tic­u­lar im­por­tance to BILT's un­sus­tain­able lever­age pro­file, ex­ces­sive re­fi­nanc­ing risk and poor liq­uid­ity, in ac­cor­dance with Fitch cri­te­ria”, the note said, while plac­ing the com­pany on Rat­ings Watch Neg­a­tive (RWN).

BILT Graphic Pa­per Prod­ucts, a step-down sub­sidiary, has loans amount­ing to over 4,000 crore

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