State Bank of India (SBI) and other public sector banks have decided to lend Rs 4,000 crore to Patanjali Ayurved for the acquisition of Ruchi Soya, which was facing bankruptcy proceedings under the Insolvency and Bankruptcy Code.
The money lent by banks will help the government-owned banks to settle their exposure to Ruchi Soya with a haircut of 65 per cent. Apart from SBI, Union Bank is also one of the banks lending to Patanjali.
Banks led by SBI and others had earlier made claims of over Rs 12,146 crore against Ruchi Soya after the company failed to repay its loans. The Patanjali group spokesperson was unavailable for comment.
The loan to Patanjali Ayurved comes a few weeks after CARE Ratings withdrew its rating on the firm in October.
On October 24, CARE said it reaffirmed and withdrew the outstanding ratings of ‘CARE A- (Single A Minus) (credit watch with developing implications)’ assigned to the bank facilities of Patanjali Ayurved with immediate effect following the consumer company’s request and ‘no objection email’ received from the bank(s) that had extended the facilities rated by CARE.
In the first week of October, CARE had downgraded ratings on Ruchi Soya’s long-term bank facilities by two notches to A-.
On October 17, CARE had placed the rating on “credit watch with developing implications” on account of the sizable Ruchi Soya acquisition of Rs 4,350 crore, which constitutes 151 per cent of Patanjali Ayurved’s net worth as of March 2019.
It had said that the rating to the bank facilities of Patanjali Ayurved derives strength from the market position of the company. It was supported by its established brand position, its widespread retail distribution network, diversified product portfolio and experienced management team.
But these rating strengths are offset by expected weakening of its financial risk profile on account of expected large outflow of funds from Patanjali Ayurved to Patanjali Consortium Adhigrahan Pvt Ltd — the special purpose vehicle created for the purpose of acquisition of Ruchi Soya Industries.
The rating had factored in the company’s higher exposure by way of loans and advances, and equity investments to the group entities. Patanjali Ayurved continues to be the largest corporate entity in the Patanjali group and hence a sizable load of the Ruchi Soya acquisition (excluding debt from banks) will be borne by it.
Further, the dependence on the brand image of its founders and intensifying competition in the FMCG, herbal and ayurvedic products are also key areas of concern. It also said the funding pattern of raising Rs 900 crore to be infused into the SPV by the company for acquisition of Ruchi Soya remains to be seen.
Source: Business-Standard