JOIN USThe Reserve Bank of India (RBI) has allowed banks to take control of companies if restructuring of debt fails.
“In order to achieve the change in ownership, the lenders under the joint lending forum (JLF) should collectively become the majority shareholder by conversion of their dues from the borrower into equity. However, the conversion by JLF lenders of their outstanding debt (principal as well as unpaid interest) into equity instruments shall be subject to the member banks’ respective total holdings in shares of the company conforming to the statutory limit in terms of Section 19(2) of Banking Regulation Act, 1949,” RBI said on Monday in a circular on the Strategic Debt Restructuring (SDR) Scheme.
Post the conversion, all lenders under the JLF must collectively hold 51 per cent or more of the equity shares issued by the company, RBI added.
According to experts, this move by the Reserve Bank spells good news for all the banks as they will have more powers to recover their stressed assets which will ultimately reflect well on their books. RBI, in its circular, has set a timeline for the conversion of debt into equity.
“The decision on invoking the SDR by converting the whole or part of the loan into equity shares should be taken by the JLF as early as possible but within 30 days from the above review of the account. Such decision should be well documented and approved by the majority of the JLF members (minimum of 75 per cent of creditors by value and 60 per cent of creditors by number),” RBI said.
Sebi open offer exemption
As per the circular, companies converting debt into equity have also been exempted from making an open offer.
“In the case of listed companies, the acquiring lender on account of conversion of debt into equity under SDR will also be exempted from the obligation to make an open offer under regulation 3 and regulation 4 of the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, in terms of SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2015.
“This has been notified vide the Gazette of India Extraordinary Part–III–Section 4 published on May 5, 2015. Banks should adhere to all the prescribed conditions by Sebi in this regard,” RBI said.