For the second time in as many months, SBI Caps is in the line of fire from bankers for approaching them with a raw deal.
In January, banks had rejected SBI Caps' initial proposal on Air India's debt recast, which suggested converting a part of the carrier's debt into cumulative redeemable preference shares, with an eight per cent dividend.
As Air India was not recording profits, banks would have taken a hit of Rs 8,000 crore (Rs 80 billion) had the proposal been implemented.
Later, after the finance ministry's intervention, the debt recast plan was modified and the conversion of debt into equity was not ruled out.
In December 2010, when Kingfisher Airlines' debt was restructured -- SBI Caps was again the merchant banker - a part of the airline's equity was converted into debt.
Banks have already provided Rs 2,000 crore (Rs 20 billion) for loans that turned into non-performing asset and mark to market losses on the equity portfolio, owing to a fall in Kingfisher's share price.
The debt conversion was carried out at Rs 65 a share.
On Thursday, the share price closed at Rs 25.30, a rise of one per cent over yesterday's close.
Now, when the airline is again asking for funds from banks, SBI Caps has proposed banks that are yet to classify the account as NPA could provide the funding.
Banks, however, rejected the proposal, saying unless dues were cleared, there would be no additional funding. Banks also want equity infusion by the promoters.
According to bankers, State Bank of India, the parent company of SBI Caps, had indicated SBI Caps' proposals would not be taken on face value, and banks would carry out their own due diligence before taking a decision.
Apart from Kingfisher and Air India, SBI Caps was also the merchant banker for the debt recast of GTL.
Ironically, SBI Caps was also the merchant banker that helped GTL raise funds from banks.
A year later, SBI Caps had again advised GTL to restructure its debt. Bankers have not favoured GTL's debt recast.
They suggested 25 per cent of the Rs 16,200-crore (Rs 162-billion) debt be converted into equity, though promoters' capital infusion stood at only Rs 300 crore (Rs 3 billion).
SBI Caps, however, says it is up to banks to accept a proposal.
A merchant banker's job, it said, was to bring all the parties together and take various risks into account. Banks would have to decide on exposure, said a SBI Caps official.
SBI Caps is the leader in terms of loan syndication and debt restructuring.
