This is about one of a our clients located in Hyderabad. We arranged the finance for his one time settlement with state bank of Hyderabad. For doing OTS Finance we are associated with some lending companies who are specially interested in financing such OTS transactions.
Client was having business of spinning mills. The spinning mill was started in year 2003. After some initial years, mill developed business in fast pace and started exporting in 10+ countries. Their company turnover increased manifolds & attains a turnover of Rs. 200+ in year 2011. They are enjoying a credit facility from state bank of Hyderabad to the tune of Rs.62 crores. Their repayment to bank was running very well till year 2013.
- During year 2013,this there were agitations in the state for bifurcation of Telangana and Andhra Pradesh. As a result, there was stoppage of production on various days.
- During this period, they not able to achieve the production of what we expected because we were not able to mobilize the labour and raw material. Also, they were not able to sell the finished product to other states because of the agitations conducted on the roads like “Vanta Varpu “etc.
- Due to lack of exports to US and Europe, entire cotton yarn produced from spinning mills in the total country was being dumped in the domestic market. This resulted in the fall of the sale prices of the cotton yarn without corresponding reduction in the procurement price of cotton bales.
- Also, the policy of the central and state governments providing a lot of incentives to spinning mills resulted in excess spindles across the country. This further resulted in big mismatch between supply and demand resulting to lower selling price of cotton yarn.
Due to all above factors, their turnover dipped very steeply and they are unable to repay installments & interest so their accounts in state bank of Hyderabad, slips in to the NPA. They requested and corresponds with bank mentioning above factors and why they are unable to serve interest on time. But, bank due to their strict policies unable to help them on this and issued notices under sarfaesi act 13(2) & 13(4) and demanded Rs.78 crores including interest & penalty. Wherein actual principal was Rs.58 crores only.
Matter was aggravated and client approached the DRT court for stay & court on various backgrounds puts a stay on taking possession & auction of collaterals. Upon realizing that case is slipping from their hands, bank moves to NCLT court.
After litigation & disputes, in year 2019 bank agrees for one time settlement with promise of waiving of all interest & penalties levied on the account. So they ask the client for formally apply for a OTS. So, client applied for OTS of Rs.50 crores but bank denies and asks to raise some more. So client once again applied for Rs.55 crores. Now, his application for one time settlement was accepted by bank and client got OTS letter of Rs.55 cr from bank with a timeline of six months.
Now, the next struggle starts for arranging money for paying off OTS. Client already planned for liquidation of his few properties which was free from any bank mortgage & buyer was already finalized but only waiting for green signal from bank. So, client was having a arrangement of around Rs.30 crores that was infused by client. Now, there was shortfall of rs.25 crores. For which client starts searching in his local market of Hyderabad. But, he could not found a proper solution. But, one a consultant(suresh reddy) whom was contacted by client start looking on google and after one or two trials he approached us. He explained the complete case and shared the documents whatever available with him. He also made us contact the client directly and through video calls, we collected some more information & documents required in the proposal. Luckily client has another company in which same business of spinning mill was running but business turnover was very less because main turnover was in their flagship company which slips in to npa. After declaring their account NPA, bank freezes their accounts which makes them unable to run business. So they diverted some of the business in that company and his sales raised rs.114 crores. Also this company has light debt of rs.3.5 cr CC limit form KVB.
Now, we planned for taking both of the company in this new loan of OTS finance. One was the NPA company and one company serves as financial pillar for this new loan. Loan will be raised through help of this new company as it is having good supportive balance sheet with positive cash flow. Financial liability will be served by this new company & properties(land, building & machinery) of previous npa company is taken as collateral for this loan.
So, we started the process for this OTS finance, first we gather all the documents of both companies and officially login the case in one of our lending company specialized for such kind of OTS finance transactions. They deeply studied the case & met the client also does the due diligence of business. Also does the legal & valuations of all underlying securities/collaterals. After getting a positive response from their credit committee they issued a term sheet to client describing all terms & conditions for new loan. And after few negotiations between the parties, letter was accepted by client. And final due diligence was done with state bank of Hyderabad regarding previous loan papers personal guarantees, underlying securities & other terms & conditions. Once all due diligence completed they informed the previous bank about release of payment from their end and execute legal document for taking over previous loan & securities from bank. Also legal agreements & documentation is done with client. And after successfully completing all the documentation they disburse the amount directly to previous bank & all the collateral handed to new lender in proper timely manner.
In this way, above transaction of OTS finance was delivered successfully making client able to service his one time settlement within timeline.