The debt restructuring package of SWAWS Credit Corp, the debt-ridden microfinance institution (MFI) based in Andhra Pradesh, has finally been approved by the corporate debt restructuring (CDR) cell. SWAWS is one of the few MFIs that have been admitted in the debt restructuring cell in spite of a negative networth.
A consortium of nine banks and four non-banking finance companies sealed the debt restructuring package on November 8, with the promoters, S Ramamurthy and Girija Ramamurthy, asked to pitch in Rs 1.25 crore, as “sacrifice value”, under the terms and condition of the deal.
While the repayment tenure of the Rs 92.95 crore, the loan outstanding for SWAWS, has been extended from two to eight years, with the cut-off date of January 1, 2012, a moratorium on repayment of interest and principal has been set for two years.
Also, about 15 per cent of the debt of the MFI would be converted into equity, while another 15 per cent would be converted into convertible debentures after the debt restructuring, said, S Ramamurthy, director, SWAWS. “One of the banks was initially reluctant to take up equity, but we requested for equity conversion, we had a negative networth,” he said.
At present, the promoters’ holding in the MFI is about 4.73 per cent, with the Sarada Mutually Aided Cooperative Society holding a majority stake of about 51.19 per cent.
SWAS is one of the last few MFIs to be admitted in the debt restructuring cell after a crisis in the sector in October 2010.
In 2011, five relatively bigger MFIs—SHARE Microfin, Asmitha Microfin, Spandana Sphoorty Financial, Trident Microfin, and Future Financial Services — had restructured close to Rs 5,000 crore in loans. However, the smaller MFIs had been struggling to stay afloat as business had come to a halt after October 2010.
Earlier this calendar year, banks had agreed to restructure loans of Bhartiya Samruddhi Finance, led by Vijay Mahajan-led BASIX Group.
Punjab National Bank, with an exposure of close to Rs 22 crore is the biggest lender to SWAWS. Other bankers to SWAWS include Indian Overseas Bank, Central Bank of India, Union Bank of India, Lakshmi Vilas Bank, Karur Vyasya Bank, IDBI Bank and Karantak Bank. The four non banking finance companies which had lend to SWAWS are: Reliance Capital and Fullerton India Credit Ltd, among others, said Ramamurthy.
Mounting debt and depleting cash flow have put small MFIs on the brink of bankruptcy, a situation where they do not have enough money to repay debt and meet day-to-day expenses. Three other small MFIs— Cresa Financial Services, Dovefin Micro Finance, and Nano Financial Services — had also requested banks to restructure their loans.