ICICI BankBSE 3.48 % and Axis BankBSE 1.63 % sold Rs.1,800 crore of loans to paper maker Ballarpur IndustriesBSE 0.77 % to Edelweiss Asset Reconstruction Company, said two people familiar with the matter. Bankers said this is possibly the first instance of a potential bad loan being sold off.
It’s also the first time that loans have been sold to an asset reconstruction firm at book value without a haircut, said the people cited above.
Axis Bank sold loans of Rs.1,200 crore and ICICI Bank sold loans of Rs.600 crore.
“The deal was concluded last week,” said one of the persons. “The loans were sold without taking any haircut since it is yet not classified as non-performing loan.”
The Ballarpur Industries’ loan sale to Edelweiss ARC is under the so-called 15:85 structure, where 15 percent is paid in cash and the balance 85% is paid in securities receipts, a kind of bond that’s repaid over five to seven years depending on the rate of recovery.
Ballarpur Industries is part of the Avantha Group, with interests in the paper and pulp sector. It had availed of Rs.6,000 crore in loans but was unable to service it in time. In February, India Ratings downgraded Ballarpur’s debt to junk status by assigning it a D rating, which indicates default in servicing loans.
Banks are turning cautious after a massive pileup of bad loans. Even in cases where they fear that there could be a default or a company may find it difficult to service loans, they are selling out. In this case, banks were not keen on providing working capital for the company, hence the sale.
Ballarpur, as part of the deal between banks and Edelweiss ARC, has also secured funding from one of the group companies of the ARC.
Under the deal, Edelweiss India Special Situation Fund has agreed to lend Rs.300 crore to the company. This will have priority status, which means that the company will first repay this .`300 crore loan and later repay the dues of other lenders.
Banks have classified the loan as special mention account-2 or SMA-2, which means that if the company’s loans are overdue for 60 days and if it fails to repay in another 30 days, the debt will be classified as non-performing loans. Once a company is classified as NPA, banks are wary of giving further loans to them.
