Compounded by recent volatile commodity markets, India’s state-owned banks have been hit by a wave of defaults on loans in sectors such as steel and infrastructure. KKR and Apollo are reported to be exploring debt restructuring opportunities in the steel sector and Standard Chartered is limbering up to sell USD 1.4 billion of stressed loans originated in India.

In June 2016, the Reserve Bank of India (the “RBI”) warned of a significant rise in bad loans, and has predicted that Indian banks’ overall non-performing asset ratio will rise to 8.5 per cent in March 2017.

With one of largest loan markets in the world (est. at 66.3 trillion Indian Rupee (“INR") (circa USD 1 trillion)), and an improved insolvency regime due to be implemented in 2017 under the Insolvency and Bankruptcy Code 2016, India may begin to provide opportunities for distressed investors.

Currently, however, local major banks dominate the historically oligopolistic and tightly regulated market, creating some barriers to entry for foreign investors.

In this month’s Trade Alert, we set out the current regulatory environment of India’s loan market, as well as some key legal considerations for potential market participants.

CODE 2016

The Code aims to unify the country’s bankruptcy and insolvency regimes, to bring it on par with more evolved insolvency regimes around the world with the aim of ensuring greater certainty and enhancing the ease of doing business in India.

The Code is intended to facilitate resolution as a first avenue for debt recovery, assisting both domestic and foreign lenders in the recovery of debt. Under the new regime, the distressed entity’s creditors submit an application to the National Company Law Tribunal (“NCLT”) for commencement of the Insolvency Resolution Process (“IRP”). Once the IRP is triggered, a 180-day moratorium on liquidation or other enforcement begins, during which time the distressed borrower and creditors are to conduct negotiations towards a resolution plan. The resolution plan must be acceptable to at least 75% of the Borrowers’ financial creditors before the deadline expires, subject to a possible 90-day extension, otherwise the moratorium will be lifted and the liquidation process may begin.

The new Code will provide creditors with the ability to initiate the liquidation of an insolvent entity, rather than the High Court or NCLT. In addition, under the Code, unsecured creditors may now form part of the Creditors’ Committee and thereby vote on the resolution plan at par with secured creditors. However, it remains to be seen how effective the new Code will be in addressing the vast array of issues India has previously experienced in its insolvency regime, especially in relation to cross-border insolvencies.


Unlike many common law jurisdictions the transfer of loans, except between amongst the lenders, is not permitted in India. However, India has taken various steps to increase the options for fund raising for Indian borrowers. As such, there are several alternative options for foreign investors to gain exposure to the Indian credit market. These include:

  • External commercial borrowings (“ECBs”), which include commercial INR and foreign currency denominated loans, securitised debt instruments, foreign currency convertible bonds and non-convertible debentures.

Provided that the lender would be considered a “Recognised Lender/Investor” under the relevant RBI guidelines there are no licencing requirements applicable. However, a private fund would not be deemed a Recognised Lender/Investor unless it invests in specified debt securities (such as foreign currency convertible bonds) listed on international capital markets.

Currently, FPIs are only permitted to invest in listed debt securities or unlisted debt securities relating to companies in the infrastructure sector. However, in order to encourage foreign investment the RBI is expected to publish amended guidelines to allow FPIs to invest in securitised debt instruments issued by special purpose vehicles of financial institutions, as well as in unlisted debt securities of all public companies.

  • INR denominated bonds issued overseas (popularly known as “Masala Bonds”). These bonds can be publically issued or privately placed. There is no requirement for licencing and Masala Bonds can be bought by residents and non-residents.


The major commercial Indian banks, which include public sector banks, are licensed under the Banking Regulation Act 1949 (“Banking Act”).

On 1 August 2016, the RBI published a framework for licensing smaller banks and other banks, such as local area banks and payments banks in the private sector, which are aimed at servicing the needs of small businesses.

Non Banking Financial Companies (“NBFCs”) can also engage in financial activities and are subject to registration with the RBI. NBFCs cannot take deposits and cannot be a part of the payment and settlement system used in India.

Foreign banks may be eligible to set up a business in India, either through a branch or through a wholly owned subsidiary.


Stamp duty is payable on all documents that result in the creation of a right or obligation (including loan documentation, transfer of loan documentation and security creation documentation) to ensure admissibility of such documents in a court of law as evidence. The rate of stamp duty varies by region.


Interest payments to foreign lenders are subject to withholding tax at a typical rate of 20% unless reduced under an applicable double taxation treaty. There is no withholding obligation relating to tax for a domestic lender regulated by the Banking Act.


In India the main methods of loan transfer, similarly to transfers pursuant to the laws of England and Wales are (i) assignment of rights, and (ii) novation of rights and obligations.

A transfer by novation extinguishes all rights and obligations of an existing lender and substitutes them with new rights and obligations of the new lender. A transfer by assignment transfers the rights (but not obligations) of an existing lender (including the right to receive interest and the right to repayment) to the new lender.


Participation between Indian banks and entities resident outside of India is permitted and is regulated by the RBI.

However, participation by a non-resident person in the risk portfolio of an Indian resident is not considered a permitted capital account transaction (under the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 (as amended)) and, therefore, would require prior RBI approval.

Risk participations however, are not commonly used. LMA participations would need to be confirmed by local counsel on a case-by-case basis.


Both trusts and agency structures are recognised in India and there are parallels with English law arrangements with regard to security packages relating to a particular loan or loan portfolio.


The transfer of security is considered to be perfected against the public upon registration with the relevant authority by way of statutory filing.

However, if the security is created in favour of a security trustee (acting on behalf of all the secured lenders) then such registration would not be required provided that the new lender acceded to the relevant documentation.


Pursuant to Section 133 of the Indian Contract Act, 1872 (as amended) any variation to a contract between the debtor and the creditor, without the consent of the guarantor, may discharge the guarantee in respect of any transactions subsequent to such variance.

Most Indian law governed guarantees have a standard waiver of defence provision stating that such amendment would not discharge the guarantor's obligations under the guarantee. However, it is prudent (to the extent practicable) to seek express confirmation from the guarantor that its guaranteed obligations would remain in full force and effect notwithstanding any transfer.


Foreign entities cannot transfer immovable property or real estate into their own names. Also, foreign nationals residing outside India are not permitted to acquire immovable property in India.

A branch office or any place of business of a foreign entity may acquire immovable property in India, but only to the extent that this is necessary or incidental to its business activities.

Despite this, foreign entities are permitted (subject to RBI approval, if required) to repatriate the enforcement proceeds outside India, subject to the extant foreign exchange laws.

Special Note:

Special thanks to Guatam Saha and Shuchi Sinha from AZB Partners who assisted with this Trade Alert.



Extension of deadline: Banco Espirito Santo S.A. (“BES”) released information to creditors that the court approved an extension to the filing deadline which will now depend upon when the service of process to creditors is deemed final. The Liquidation Committee will publish the new deadline on the BES Website: click here for the BES release.

Reorg Research has recently reported that the Lisbon Supreme Administrative Court is to review the Bank of Portugal’s (“BoP”) decision to split BES into a “good bank” and a “bad bank”. The Court will consider whether the decision was legal and constitutional.

The Lisbon Administrative Court transferred the BoP case to the higher court due to the wider impact the decision may have on the other on-going matters regarding BES. Portugal’s Article 25.2 of the Statutes of Administrative and Fiscal Courts provides that, where there is a legal decision pending on a challenging case which could lead to different sentencing by different judges, the case can be sent to the highest level of administrative law for ruling.

The Supreme Administrative Court has not yet provided a timeline for reviewing the BoP’s decision but this may impact on the various current litigation against BoP.



Earlier this week, Caesars Entertainment Corporation (“CEC”) and Caesars Entertainment Operating Company, Inc. (“CEOC”) and its Chapter 11 subsidiary debtors (collectively, the “Debtors”) disclosed that they have received confirmation of support for a term sheet outlining the major economic terms of a Chapter 11 plan of reorganisation for the Debtors from each of the Debtors’ major creditor groups. The parties are collectively working on preparing the definitive documentation and amendments to CEOC’s existing plan of reorganisation, which will include the terms and conditions set forth in such term sheet (the “Revised Plan of Reorganisation”).

Pursuant to the Revised Plan of Reorganisation, Second Lien Noteholders will recover approximately 66 cents on the dollar, which is a significant increase from the 27 cents on the dollar recovery under the former plan of reorganisation. The recovery for First Lien Noteholders will remain at about 109 cents on the dollar, while First Lien Bank Lender and Subsidiary Guaranteed Noteholder recoveries will each decline by approximately one cent to 115 cents and 83 cents on the dollar, respectively. Finally, unsecured creditors will recover approximately 66 cents on the dollar, which will consist of a combination of cash, equity in the surviving entity from the planned merger of Caesars Acquisition Company and CEC (“New CEC”), and convertible notes in New CEC.

The Revised Plan of Reorganisation will be subject to a formal creditor vote, in addition to a confirmation by the Bankruptcy Court. Currently, the Revised Plan of Reorganisation is scheduled to be heard by U.S. Bankruptcy Judge A. Benjamin Goldgar in Chicago, Illinois in January 2017.

More information regarding the Revised Plan of Reorganisation can be found here.



presented the consolidated interim financial statements for 1 January to 30 June 2016, prepared in accordance with IFRS along with a covering report. A conference call took place on 2 September 2015, where the CEO and Chairman presented the H1 Financial Statements to creditors.

Optional Redemption: Glitnir reached an agreement with Íslandsbanki on 31 August 2016 for the redemption of the Tier 2 Note and Deposit issued by Íslandsbanki and held by Glitnir in a total of EUR 369,000,000. As a result, Glitnir confirmed a significant increase in the available cash for redemption of the Notes. The final amount paid to Noteholders in the Optional Redemption on 22 September 2016 was EUR 375,994,114. Following the redemption, the aggregate principal amount of the Amortising Zero-Coupon Convertible Notes due 2030 is EUR 494,323,905.

Further information regarding Glitnir can be found on the website and Noteholders who wish to confirm the principal amount outstanding in respect of their holding of Notes can do so through the secured creditors’ website.


Annual General Meeting: Kaupthing held its Annual General Meeting on 20 August 2016. Shareholders or their representatives holding 88.12% of Kaupthing’s share capital attended the meeting.

The Kaupthing Board of Directors proposed a ‘Remuneration Policy’ at the meeting which was approved by 91% of the votes cast at the meeting. Kaupthing presented an Employee Retention and Incentive Plan, which aims to (a) maximise the value of Kaupthing’s assets for the benefit of its shareholders; (b) retain valuable employees for as long as the Company is in operation; (c) motivate employees to work efficiently until the termination of their jobs, to enable the on-going liquidation of the remaining portfolio of assets and resulting funds are ultimately returned to shareholders.

  1. LBI EHF

Share Capital Conversion: On 16 September 2016, the shareholders of LBI ehf unanimously accepted amendments to the Articles of Association in an extraordinary meeting. The key change for creditors is the conversion of the share capital in the Company from being denominated in ISK to EUR. The exchange rate applied to convert the share capital is EURISK 141.11 and the new outstanding share capital is EUR 11,338,671.96 with each share having a nominal value of EUR 0.01. Each shareholder has therefore been assigned an equivalent amount of shares in EUR by the Company. The minutes of the meeting are available here.

Unscheduled Payment: LBI has provided notice to Noteholders of its intention to make an unscheduled payment in respect of the Convertible Notes on 12 October 2016 in an amount currently estimated at EUR 415,000,000. Further detail will be provided to Noteholders on 3 October 2016, in accordance with the terms and conditions of the Convertible Notes.

Cancellation of securities: In addition, LBI has announced that it has been marking down and cancelling previous LBI securities over the past few months. For a full list of affected ISIN’s, please see the LBI website.



The LMA launched a new recommended form of intercreditor agreement for use in real estate finance transactions (the “REF Contractual ICA”). It was proposed in response to demand from members documenting smaller to mid-sized transactions in the regional real estate finance market who were increasingly seeing loans provided via a combination of senior and mezzanine finance and ranked by way of contractual subordination only and with common security.

The REF Contractual ICA, for use in conjunction with the LMA's Recommended Form of Facility Agreement for real estate finance multi-property investment transactions, uses the same "boilerplate" as the LMA Recommended Form of Intercreditor Agreement for the leveraged finance market and so should be immediately familiar to all users of LMA documentation.

The REF Contractual ICA is available here at the LMA’s secure website.