RBI-Sebi close to reaching pact on valuation of troubled cos

The Reserve Bank and market regulator Sebi are close to reaching an agreement for providing waiver of existing norms to banks while they restructure debt into equity with the objective of minimising losses.

Detailed guidelines from the RBI's end will be issued within three months.

"Very often, share prices of companies whose debt is being restructured, in accordance with the stipulations of Issue of Capital and Disclosure Requirements (ICDR) Regulations are found to be not in consonance with their intrinsic value," RBI said in the monetary policy review.

This results in upfront allocation of disproportionate share of loss on restructuring to banks, it said.

"Sebi is interested in protecting the rights of the minority shareholders and the RBI is interested in making sure banks do not convert at too high a price and given a fair value," Reserve Bank Governor Raghuram Rajan said while addressing the media at the customary post-policy press meet.

"The discussion with the Sebi is coming to some agreement," he said, without elaborating. The RBI recently allowed banks to up their stakes in companies they have lent to while they go about restructuring so as to ensure that the asset gets saved. With regards to stalled projects, RBI said management change may be required in certain such projects.

Rajan said potentially, if two banks join hands, they can also ensure a management takeover of the assets with their individual limit at 30 per cent each.

"This will allow a more effective transfer in case there is a need for change in management." "In the case of projects which have been stalled primarily due to inadequacies of the current promoters/management, a change in ownership and management may be required to revive the project," it said.

"In this context, the new promoters/developers may require additional time to revive/complete the stalled projects," it added.

In order to facilitate change in ownership and revival, it has been decided to provide further flexibility by allowing a further extension of the date of commencement of commercial operations (DCCO) of such projects where a change of ownership takes place, without adversely affecting the asset classification of loans to such projects, subject to certain conditions, it said.

Commenting on this SBI Chairperson Arundhati Bhattacharya said the flexibility regarding the DCCO will enthuse companies with strong balance sheets to consider taking over stuck projects.

Operating guidelines in this regard will be issued shortly, it added.

It can be noted that in many companies like Suzlon, infra lender IVRCL, the crippled Kingfisher Airlines and Deccan Holdings, among others, banks hold stakes following their loan recast.