SCI Obtains Lenders’ Approval of Demerger Plan; Irano Hind’s problem is about to be ‘solved’
Mumbai: Shipping Corporation of India Ltd (SCI) secured the support of its secured and unsecured lenders on the spin-off program which involves the transfer of Rs 1,000 crore of the company’s excess cash to the non-core company spun off from the listed entity before the sale.
State Bank of India, EXIM Bank and Standard Chartered Bank are SCI’s major lenders. The lender’s approval is a major step forward for the spin-off program, which is key to the privatization process of India’s largest shipping company.
Six unsecured creditors representing 0.3689% of the total debt by value held by unsecured creditors, however, voted against the split resolution when it was voted on October 11. By comparison, all secured creditors voted in favor of the proposed split.
The six unsecured creditors who voted against the split plan were likely skeptical of the planned higher fund transfer of Rs 1,000 crore to the non-essential company, which was pegged at Rs 450 crore in the plan of arrangement initially approved last year because it would hurt the company’s ability to service debt, raise SCI’s risk profile among banks and force lenders to reprice the loan.
The huge amount that needs to be withdrawn from the company’s excess cash is also expected to impact its ability to continue day-to-day operations. SCI has a cash surplus of Rs 1,406.91 crore (cash and cash equivalents and bank balances) as of March 31, 2022, according to its latest financial statements.
If Rs 1,000 crore is withdrawn and given to SCILAL, the main company which does the core business of ship management is left with only Rs 406.91 crore. Of this amount, Rs 133.85 crore is the balance of funds raised through a follow-on public offering in December 2010, which can only be used for the purchase of vessels, in accordance with the objects clause set out in the prospectus sale of shares.
Indeed, SCI would then be left with Rs273.06 crore, which will be largely insufficient for company management to run the show and make money, potentially ‘suffocating’ the shipping carrier, putting it under financial and becoming a loss. – manufacturing entity.
The spin-off program aims to facilitate the privatization of the main company by releasing the value of the company and the assets. The government’s position is that the value of non-core assets is not reflected in the value of SCI’s core business (core assets) and should therefore be separated prior to sale.