Jul 01, 2016

Scheme for Sustainable Structuring of Stressed Assets

RBI has, by its circular dated June 13, 2016, introduced a scheme for resolution of large accounts referred to as the ‘Scheme for Sustainable Structuring of Stressed Assets’, which is an optional framework and involves lenders determining the level of sustainable debt for a stressed borrower, and bifurcating the outstanding debt into sustainable debt (being a level of debt whose principal value can be serviced over the same tenor as that of the existing facilities even if future cash flows of the borrower remain at their current level and including new funding required to be sanctioned in the next six months). The remaining debt which will be converted into equity or quasi-equity instruments issued to the lender (subject to the pricing guidelines and other conditions outlined in the circular).

For an account to be eligible to avail of this scheme: (i) the project must have commenced commercial operations; (ii) the aggregate exposure of all institutional lenders (including foreign currency lenders) in the account must be more than Rs 500 crores (approximately US$ 73 million); and (iii) at least 50% of the current funded liabilities of the borrower should constitute ‘sustainable debt’. The resolution plan will be reviewed by an overseeing committee, set up by the Indian Banks Association, in consultation with RBI and comprising eminent experts. Post-resolution, the borrower’s ownership pattern may reflect a change in control of the borrower with either the lenders or a new promoter acquiring a majority stake in the company; or the existing promoters continuing to hold the majority shareholding/ controlling interest in the company, and in either case additional conditions may be imposed by the lenders on the promoters with respect to manner of dilution of shareholding, issuance of guarantee, etc. The resolution plan and control rights are to be structured to ensure that the promoters are not allowed to sell the shares of the borrower without the prior approval of lenders and without sharing the upside, if any, with the lenders towards loss in residual (converted) debt.




These are the views and opinions of the author(s) and do not necessarily reflect the views of the Firm. This article is intended for general information only and does not constitute legal or other advice and you acknowledge that there is no relationship (implied, legal or fiduciary) between you and the author/AZB. AZB does not claim that the article's content or information is accurate, correct or complete, and disclaims all liability for any loss or damage caused through error or omission.