While few select lenders are planning for a winding-up petition against REI Agro, the country's largest basmati player, Jhunjhunwala family, the promoter group, is trying hard to salvage the situation by convincing the consortium of lenders to agree to a corrective action plan as per the RBI guidelines with regards to its debt burden.
Following the company's rout in last few years, lenders have been left shaken hard with Jammu & Kashmir (J&K) Bank burdened with a stressed loan of Rs 650 crore in the last quarter spooking the investors on Friday and United Bank of India (UBoI) filing a winding-up petition in the court.
REI Agro, which on Saturday reported a loss of Rs 49.70 crore in the March quarter against a profit of Rs 53.48 lakhs in the corresponding quarter of last year, said its board has agreed for initiating a corrective action plan - a nomenclature under Reserve Bank of India guidelines - for its total debt taken from a consortium of banks, which have now formed a Joint Lenders Forum to implement it.
The day also saw elder brother Sanjay Jhunjhunwala stepping down as chairman and managing director Sandip Jhunjhunwala taking over the reins.
"We are working out a scheme to revive the company. It is too premature now to disclose it and by month end we will finalise it and submit it to the joint lenders' forum," Sandip Jhunjhunwala, vice chairman and MD, told dna.
RBI in February defined a corrective action plan as one not worked out to encourage just restructuring or recovery, but to arrive at an "early and feasible solution to preserve the economic value of underlying assets as well as the lenders' loans".
Jhunjhunwala however said the process would involve restructuring of the loans also.
Apart from J&K Bank, the affected lenders are UBoI with an exposure of Rs 215 crore, Dena Bank having little over Rs 100 crore and also UCO Bank, with total aggregate exposure of Rs 5,680 crore.
To begin with, the consortium consisting of 20 lenders led by UBoI and UCO met in the first week of May and asked the management of REI Agro to come up with a revival plan with a detailed action plan with active guidance from the consortium.
Shortly thereafter, UBoI on May 14 said it has filed a winding up petition against the company openly questioning the viability of REI Agro and claimed that while all recourse for recovering the amount has been taken the basmati exporter is in no position to service it.
REI Agro reacted saying UBoI's move is surprising considering that the bank has already agreed to the corrective action plan and claimed other consortium partners have requested the bank to withdraw the winding up petition as this would frustrate the restructuring effort.
REI Agro's predicament is surprising as the going has been good for players in the sector with basmati exports doubling in the last four years to about 4.02 million tonnes and with profits of competitors like KRBL jumping 240% in the March quarter and LT Foods' net rising 103%.
The answer lies in poor working capital management and funding of projects, which have absorbed significant loans.
It has been setting up three projects at an investment of Rs 1,135.50 crore at a debt:equity of 2.7:1 in a bid to enhance basmati processing capacity and setting up warehousing and packaging facility.
While majority of the project cost has been spent by January they are expected to contribute to profitability only by the end of FY15.
But even as REI Agro struggles with restructuring its debt with domestic lenders, it has to repay FCCBs of $104.65 million in November, and repaying it would pose a challenge.