Anil Ambani to part-repay early USD 850m loan creditors claim is in technical default

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Anil Ambani plans to part-repay early an USD 850m share-backed facility that some creditors claim is in technical default, a source at the Indian billionaire’s investment holding company told Debtwire.

The claim that the facility is in default is based on the creditors’ assertion that Ambani failed to top-up with USD 200m in cash the collateral account for the USD 850m loan, said people familiar with the situation.

The failure to make the payment to the collateral account comes even after the younger of the two Ambani brothers -- who lost three-quarters of his wealth in the past year, according to Forbes -- was permitted to decrease the amount he was required to deposit, they said. It has also deepened a rift between the facility’s bank and hedge fund lenders, highlighting the clash of interests that often occur between various types of creditors in restructurings, especially when banks play various roles in the same facility.

”The claim is rubbish,” said the company source.

The USD 850m, Libor+ 235bp, three-year loan was arranged by Barclay’s Capital in April 2007, and is mostly held by the UK bank and rival RBS, although a handful of hedge funds are also involved, according to people familiar to the situation. The facility, which was used for investment purposes, is backed by a 13.19% stake in Ambani’s Reliance Communications, 16.45% of Reliance Infrastructure and 4.03% in Reliance Capital, according to the sources.

The three companies in April announced that Ambani stock-holding entities pledged those amounts of shares, but did not elaborate for what facilities, as per new disclosure rules issued by the Indian market regulator early this year. As of 31 March, Ambani controlled a 67% stake in the broadband and wireless outfit Communications, 37% in power utility Infrastructure and around 53% Capital, a financial services firm.

In March, after the price of the three companies’ Bombay-listed stocks dropped precipitously, reducing the share coverage to below 1.7x, the Indian industrialist was required to top-up the collateral with around USD 400m, the people familiar said.

After he failed to make the cash top-up, lenders relented to allow him to reduce the amount owed to the account to USD 350m, and to make the payments in three tranches, the people familiar said. Ambani -- worth USD 10bn, according to the Forbes 2008 rich list, down USD 32bn for the year -- made the first payment of USD 150m at around the end of March, but then failed to make the two USD 100m follow-up payments due in the subsequent two months, they said.

Two of the funds involved have attempted to accelerate the facility, but so far have been blocked by BarCap, which is also the facility agent. Under the terms of the loan, any holder with at least 8% principal can accelerate the facility, and at least three funds each surpassed that amount, said two of the people familiar. However, BarCap, as well as RBS, have argued that, as the largest lenders, they can block the acceleration because it would be most affect them, the source said.

BarCap and RBS would not comment for this story. (RBS inherited the facility from its recent acquisition of ABN Amro.)

The senior company source said that perhaps about one third of the facility could be paid back early, but that this was only because the funds were no longer necessary. The group is also seeking to extend and restructure the terms of the remainder of the loan, he said.

The monumental rebound in the share prices over the past three months has taken away some the urgency by the two banks to close a deal, said one of the people familiar with the situation. However, though share coverage is now around 4x, it does not cure Ambani’s alleged default for failing to top-up the collateral. In fact, under the terms of the facility, there is no automatic top-down requirement for the cash collateral, and thus, had the USD 350m been deposited as required, it would not necessarily have been returned when the stock price shot up, said three people familiar.

BarCap is hoping to present the loan restructuring plan to lenders imminently, said one of the people familiar with the situation. To succeed, the bank would need the unanimous support of the lenders to push through any restructuring.

That is no sure thing. Already, the hedge fund lenders, who control more than a quarter of the facility, have turned down a restructuring that included the early repayment of a small portion of the facility, said one of the people familiar.

More ominously, the hedge funds have retained counsel to consider whether they can seek redress from the borrower and BarCap, said two of the people familiar with the situation. They, too, have an imminent plan, and it involves pressing the claim in court, said the two people familiar.

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