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Varun Shipping may consider debt recast through CDR cell

Mumbai-based Varun Shipping Co. Ltd, the largest owner of vessels that can transport liquefied petroleum gas (LPG) in India, is considering a recast of its debt via the so-called Corporate Debt Restructuring (CDR) cell, three people familiar with the matter said. The company is looking to restructure its own debt of Rs.930 crore and an additional Rs.260 crore in loans of group firm Varun Gas Infrastructure Ltd, said a banker with the CDR cell on condition of anonymity as he is not authorized to talk to the press. The case is yet to be referred to the cell, one of the bankers quoted above confirmed. “The joint lenders’ forum (JLF) for the company has decided to restructure its debt through the CDR Cell. The reference will be made to the cell in some time,” said a second public sector banker aware of the discussions. For a case to be referred to the CDR Cell, creditors having minimum 20% share in either working capital or term finance have to agree to approach the cell. Under the RBI’s new guidelines for management of stressed assets, which came in to effect from 1 April, a JLF is formed in cases where there are multiple banks lending to a single company. A JLF is formed as soon as a bank classifies the company under the special mention account-2 (SMA-2) category, which implies that the company has delayed interest repayment by more than 60 days. Bankers in the JLF decide on whether they want to restructure the loan, provide more funding or to initiate recovery measures against the company. In 2012, the company had restructured nearly Rs.2,000 crore of debt by transferring some of its ships to overseas subsidiaries. The overseas arms, in turn, used the ships as collateral to raise inexpensive dollar loans to help repay costlier Indian debt. “We are looking at multiple options to reorganize the company,” Yudhishthir Khatau, chairman and managing director said over a phone call on 31 July, without divulging details. Subsequent calls and text messages to Khatau to seek more details did not elicit any response. As on 31 March 2014, Varun Shipping’s net loss stood at Rs.120 crore, as compared with a loss of Rs.47.72 crore in the same period a year ago. Its outstanding debt was Rs.970.58 crore. On 20 March, Mint had reported that Varun Shipping sold a so-called very large liquefied petroleum gas (LPG) carrier to another shipping company, Mercator. In March, India’s maritime regulator, the Directorate General of Shipping, annulled a so-called document of compliance (DoC)—a licence to operate ships—of Varun Shipping after the firm failed to carry out mandatory dry-docking of ships for safety surveys and pay wage arrears to its crew. Statutory surveys and certifications on six of Varun’s eight Indian ships were overdue for several months, rendering them unsafe and unseaworthy, the regulator had said in a notice. Statutory safety surveys, particularly expensive dry-dock repairs, have to be conducted twice every five years on a ship, with intervals between them not exceeding 36 months. “Varun owns/operates a fleet of 18 vessels, comprising 9 LPG carriers, 3 crude oil tankers and 5 anchor handling towing and supply (AHTS) vessels,” the company says on its website. Meanwhile, Life Insurance Corporation (LIC) of India, a lender to Varun Shipping, has filed a winding up petition against the company under Section 433, 434 and 439 of the Companies Act in Bombay High Court. The case was filed on 15 July, according to information available on the high court’s website. MDP & Partners are representing LIC in this case. “Shipping tariffs have been coming down due to a slowdown and profitability of most companies is down. Indian ships have not invested as much as Chinese ships in their capex, which is also affecting their business. The companies that have not provided enough for contingencies to tide over the cycle—and most of them haven’t—are likely to suffer,” said Abizer Diwanji, partner (restructuring), at consulting firm EY. On Monday, Varun Shipping stock ended at Rs.9.01 a share on BSE, up 8.16% from the previous close. The number of companies being referred for debt restructuring via the CDR cell saw a sharp fall in the first quarter of the current fiscal, as fewer companies sought large scale restructuring and banks adjusted to new rules from the banking regulator. According to provisional data collated by the CDR Cell, the cumulative value of cases referred in the April-June period was Rs.2,854 crore, the lowest amount referred for restructuring in any quarter over the past two years. The cell, however, did approve the debt recast of 10 companies referred in the previous quarters. A cumulative loan amount of over Rs.18,000 crore was recast during the quarter.
Source: Live Mint