KANNUR: A loan restructuring plan proposed by the financially embattled Kannur International Aiport Ltd (KIAL) with the help of REC Ltd remains stalled for about two years now due to the delay in funds the Kerala government was supposed to contribute.
REC Ltd had sanctioned the loan for an amount of Rs1,171.17 crore at a floor rate of 9 per cent per annum for the first year. Thereafter the interest rate is linked to the 10-year AAA corporate bond yield.
The existing loans that amount to Rs1,165.61 crore including the interest accrued so far, are from a consortium of banks. KIAL hopes to bring down the interest expenses and to get a longer tenure for the loans by way of signing a refinancing deal with REC Ltd.
GoK fund infusion
Under the deal with REC Ltd, it has been agreed that the term loan will be repayable in 20 years as against the 11-year repayment period for the existing term loan from the banks.
The key condition for the REC refinancing was that the government of Kerala (GoK) would infuse Rs113 crore into the project in the form of subordinate debt/equity, and the pledge of 51 per cent shares of GoK.
Over and above that, the Kerala government will be required to provide an unconditional and irrevocable letter of comfort towards the debt servicing obligations.
Plan still hanging fire
But after the passage of almost two years now, the government has paid only Rs79.86 crore as of March 31, 2024 towards its committed contribution – far short of the agreed amount, and this has been the stumbling block to the deal with REC Ltd
REC Ltd, or Rural Electrification Corporation Ltd, is an Indian infrastructure finance company that provides financial services to the power sector and other industries.
REC’s restructuring plan would have helped KIAL save a lot on the interest front and moreover, the other terms of the loan were also much more lenient compared with the existing loans provided by a consortium of banks.
Existing loans
The existing term loan borrowings are from a consortium of banks with Canara Bank as the lead bank and the interest payable to the banks ranges between 10.15 per cent and 11.25 per cent.
The other member banks involved in the consortium are the South Indian Bank (SIB) and the Federal Bank.
Under the earlier deal with the banks, KIAL had agreed to borrow from the consortium a maximum of Rs892 crore, out of which Rs692 crore was provided by Canara Bank alone, Rs110 crore from SIB and Rs90 crore from Federal Bank, on the security of immovable properties and other securities.
KIAL’s poor finances
KIAL’s financial health has been deteriorating steadily over the years, and with the Rs168.56 crore loss the company logged for 2023-24 (FY24), KIAL’s accumulated losses have reached Rs742.77 crore resulting in a substantial erosion of its equity capital.
The company that has started off with a share capital of Rs1,338.39 crore a few years ago, now sits on an equity capital of just Rs596.98 crore, less than half of its paid-up capital.
“if KIAL continues the losing streak for the next two or three years like this, the whole equity base of the company will be wiped out,” said a chartered accountant while talking with businessbenchmark.news.
Loan restructuring plan
KIAL has total borrowings to the tune of Rs1,165.61 crore including a long-term portion of Rs1,124.90 crore as of March end, 2024. It was about two years ago, KIAL approached REC Ltd for refinancing its loans.
