Strength of the underlying structure
The transaction is based on the shares pledge structure as well as guaranteed by Mrs. Rekha Jhunjhunwala. The guarantors can pledge the shares either from pre-approved shares list provided by the subscriber or from the shares that are part of the ‘BSE 100’ which should form minimum 80% of the total pledge portfolio. Stocks outside ‘BSE 100’ are capped at 20%. The pledge portfolio is designed in such a way that:
i. there should minimum five stocks maintained in the basket,
ii. contribution of single stock is capped at 30% of the total pledge basket,
iii. sectoral contribution is capped at 50% of the total pledge portfolio,
iv. Shares from single promoter holding group should not exceed 40% (except TATA group, which is capped at 55%)
v. Liquidity days should not exceed 3 days.
The level of guarantee is such that the aggregate value of pledged shares at Initial Share Price shall be at least equal to 2.1 times of the Aggregate NCD Outstanding Amount. There will be a Share Pledge Agreement specifically mentioning unconditional and irrevocable rights to the Debenture Trustee to sell shares out of the Pledged basket as may be required to bridge any shortfall in the NCD Servicing Account. The Credit Enhancers shall also provide personal guarantee, favouring Debenture Trustee to specifically provide unconditional and irrevocable obligation to fund any shortfall in the NCD Servicing Account when called upon by the Debenture Trustee. There will also be a Non Disposal Undertaking (NDU) on 49% of Issuer’s ownership (i.e. 28.9%) in shares of the Acquiring Company. The Debenture Trustee shall determine the portfolio value daily on the basis of the volume-weighted average share price of that particular day. In the event the Issuer wishes to sell any shares in the acquiring Company, permissible after 12 months from the Pay-in date, NDU to be waived off by the NCD Holders subject to additional security being added to the Portfolio to increase the Portfolio Value to 2.33 times of the Aggregate NCD outstanding amount. The top-up and top-down conditions will also be revised to 2.00 times and 2.66 times from 1.75 time and 2.45 times of the Aggregate NCD outstanding amount respectively. REPL shall make payments of interests and principal amounts due at the end of the tenor. The Issuer would be required to deposit the full servicing amount in the NCD servicing account at least 7 days prior to the first tranche final redemption date and the second tranche final redemption date (each such date, a “Guarantor Funding Date”), the Guarantor agrees to fund the Debenture Servicing Account to the extent of the shortfall. In the event the Guarantor fails to fund the Debenture Servicing Account as specified herein above on the Guarantor Funding Date, the Debenture Trustee (acting on the instructions of the Debenture Holders provided by way of a Majority Resolution), would be entitled to and have the option to invoke the pledge and sell or transfer the Collateral Shares (or any portion thereof) to realize funds to the extent of such shortfall. The funds available in the Debenture Servicing Account can be invested in fixed deposits with any branch of Barclays Bank PLC acceptable to the Initial Debenture Holders, pending their utilization towards servicing the Debentures. Acuité believes that the proposed structure provides adequate covenants to safeguard the interest of the lender. The lender has enough buffers available to initiate corrective action and mitigate the risks arising out of non-adherence to the proposed terms and conditions.
 

 Promoters with high networth
The underlying structure of the transaction would be benefitting from the substantial unencumbered high net worth of the promoters. Acuité believes that the resourceful promoters will ensure that adequate buffer is available to absorb unexpected shocks arise from the volatility in the capital market.