NEW DELHI: Lenders to paper maker Ballarpur Industries (BILT) have proposed to invoke strategic debt restructuring (SDR) and seize control of the flagship unit of the company that contributes as much as 85% of the operating profits of its publicly traded parent, said officials in the know.A consortium of lenders led by Axis Bank have proposed to invoke the SDR at BILT Graphic Paper Products, a stepdown subsidiary of BILT, which has loans amounting to over Rs 4,000 crore as the paper manufacturer struggles to operate manufacturing plants due to a working capital crisis.The SDR, if approved, could give the lender consortium that includes ICICI Bank, Standard Chartered, Rabo, Goldman Sachs and IndusInd Bank among others a majority stake in the company. Axis Bank leads the consortium. The proposal for the SDR was discussed at a meeting of the joint lenders forum (JLF) in the last week of December and subsequently at a meeting of the board of directors of BILT on Wednesday, said people directly aware of the matter.A spokesperson for BILT did not respond to emailed queries till press-time, while a spokesperson for Axis Bank declined to comment when contacted by ET. The Reserve Bank of India’s guidelines for strategic debt restructuring stipulate that 75% of creditors by value and 60% of creditors by number must approve an SDR before it is invoked. The guidelines further state that lenders may convert a part or the entire portion of their debt into equity of at least 51% in the borrower company and that the JLF lenders should divest their holdings as soon as possible.The guidelines allow for a borrower account to be upgraded to a “standard” asset post change of control. BILT has a consolidated debt estimated to be in excess of Rs 6,000 crore. BILT Graphic Paper Products owns four of the six paper manufacturing units housed in the parent company, which are located at Ballarpur, Bhigwan and Ashti in Maharashtra and at Sewa in Odisha. Two of the four units have shut down production while the other two are operating at 30% of their capacity due to fund constraints.In September 2015, BILT — India's largest maker of writing and printing paper — had announced that its step-down subsidiary, Ballarpur Paper Holdings (BPH), had entered into a definitive share sale agreement for selling its 98.1% equity in Sabah Forest Industries, Malaysia (SFI), to Pandawa Sakti (Sabah), the arm of a local business group Pandawa Sakti. Since then, the deal date has been postponed thrice and finally fell through.The company had expected to receive a net $350 million from the divestment to help prune its leverage. More recently, it has also discussed a sale of two of its units with rival JK Paper and is also said to be in talks with Goldman Sachs and Edelweiss for short term loans. In a note to shareholders accompanying its annual report for 2016, BILT chairman Gautam Thapar said that despite “a fairly rapid increase in demand for paper across most major emerging markets, there exists substantial global excess capacity in pulp as well as printing and writing paper”.He further stated “the interest cost on funds that were earlier borrowed to modernise plants and equipment to produce greater throughput of higher grades of value added products has turned out to be too much to bear vis-à-vis your company’s operating profits”. BILT reported consolidated revenues of approximately Rs 1,800 crore for the nine months ended December 31, 2016, and losses of approximately Rs 1,200 crore for the same period, due to rising debt servicing obligations.In a note circulated on January 30, ratings agency Fitch downgraded BILT’s ratings to ‘CCC’ from ‘B-’, a rating that is just two notches above default. A rating of ‘C’ is ascribed to a defaulter.