Jain Irrigation, a leading global irrigation company, has been making headlines recently due to its Inter Creditor Agreement (ICA). This agreement has been signed between the company and the consortium of its lenders under the guidelines of the Reserve Bank of India’s June 2019 circular. Here`s everything you need to know about Jain Irrigation`s Inter Creditor Agreement.
What is an Inter Creditor Agreement?
An Inter Creditor Agreement is a treaty between the lending institutions to work together in a coordinated manner to resolve the debt situation of a borrower. The ICA enables lenders to take decisions with regard to resolution of stressed assets and carve out a resolution plan among themselves. The agreement lays down the rules of engagement between the lenders and the borrower, including the decision-making process, timelines, voting rights, and other key aspects.
Jain Irrigation`s Situation
Jain Irrigation was in severe financial distress for quite some time, and the company had a debt of over ₹7,000 crore. In August 2019, the company sought a debt resolution plan from its lenders, which subsequently led to the signing of the Inter Creditor Agreement. The lenders group includes SBI, ICICI Bank, Axis Bank, and Bank of Baroda. The signing of the Inter Creditor Agreement puts the company on a path to resolving its debt issues with the help of its lenders.
Benefits of the Inter Creditor Agreement
The Inter Creditor Agreement provides many benefits to the lenders and the borrower alike. For the lenders, it helps to resolve the debt situation of the borrower through coordinated actions. It allows lenders to take appropriate steps to manage the stressed assets and jointly work out a resolution plan. For the borrower, it provides a more structured mechanism to resolve its debt situation instead of dealing with individual lenders.
Conclusion
Jain Irrigation`s Inter Creditor Agreement is a significant milestone for the company and its lenders. The agreement lays down the terms of engagement between the company and its lenders, which will help to resolve the debt situation of the borrower. The ICA provides a more structured mechanism for debt resolution and enables lenders to take coordinated actions to manage stressed assets. This move is likely to enhance the company`s operations and bring it back on the path of growth.