BS: Chalet Hotels scouts for distressed assets in hospitality sector

27 February 2019: Chalet Hotels, a K Raheja group firm, is scouting for acquisitions as it seeks to ramp up presence in the hospitality space, said a top company official. 

The developer and asset manager of global hospitality brands, including JW Marriott and Renaissance, are also developing three greenfield hotel projects and a couple of office towers in Mumbai and Bengaluru to tap the burgeoning demand. Chalet has outlined a capital expenditure of Rs 1,100 crore for the projects. 

The Mumbai-based firm, which recently concluded an initial public offering (IPO), has pared its debt to Rs 1,500 crore from Rs 2,600 crore. The capex requirement will be funded through internal accruals and the company will not need debt or equity. The asset developer raised Rs 950 crore through the IPO. It was the second hotel after Lemon Tree to go public in less than 12 months. 

“Acquisition will be an important pillar of our growth strategy. The National Company Law Tribunal (NCLT) has created interesting opportunities,” Sanjay Sethi, managing director and chief executive officer (CEO), Chalet Hotels, told Business Standard. He said a buyout, rather than building projects ground-up, will make better sense as the industry is in the midst of an up-cycle. 

“We believe this is a longish up-cycle, driven by the dynamics of demand and supply,” said Sethi. To be sure, the acquisition will be a marked departure in strategy for the company. So far, it has been expanding by developing greenfield projects. 

With the buyouts, the company is also looking to expand its presence beyond Bengaluru, Hyderabad and Mumbai and have presence in cities like Chennai, Pune and Goa. 

Sethi, however, added that even as there are quite a few assets available below the replacement costs, Chalet will only pursue the ones that meet its criteria of high returns. The assets should add an earnings before interest, tax, depreciation and amortisation (Ebitda) of Rs 40-50 crore each, he added.

Meanwhile, the three greenfield hotel projects underway will add another 588 rooms to its existing portfolio of 2,328. 

Chalet is the asset manager for properties, including JW Marriott, Sahar, Mumbai; Marriott Hotel, Whitefield, Bengaluru, The Westin Hyderabad Mindspace; Four Points by Sheraton, Vashi in Navi Mumbai, and Renaissance. 

Of the three, one will be for Hyatt Regency in Airoli, Navi Mumbai, while the other will be W, a Marriott brand that will come up in the Renaissance Complex at Powai in Mumbai and the third would be a property for Westin in Hyderabad. 

While the Hyderabad property will be operational by April 2021, the ones in Mumbai will commence operations by September 2021.

Chalet is also developing two office towers in Mumbai and Bengaluru with a combined area of 1,100 sq ft. Both will be co-located on the hotel premises and complement the hotels, said Sethi. 

They will be operational by September 2021 and March 2021, respectively. Asset developers always tend to gain during an up cycle and Chalet is well positioned to take advantage, said Deepak Agarwal, an analyst at Phillip Capital. 

He, however, added that, with most its properties already running at 70-80 per cent occupancy, there is hardly any headroom for growth in the top line even as profitability is set to improve owing to appreciating average room rent. 

“The next cycle of growth will kick in once the new properties become operational,” he said. With demand outstripping supply, Agarwal expects the hotel operators to benefit for the next two to three years. 

Sethi is even more optimistic. “We expect the favorable arbitrage between demand and supply to continue for the next five to seven years,” said Sethi, adding that he expects supplies to be in the low-single digit during this period.

The Business Standard reported

BS: Bank of Baroda to sell NPAs worth Rs 6,000 cr, including RCom debt

27 February 2019: State-owned Bank of Baroda (BoB) has floated an expression (EoI) of interest to sell its non performing assets worth over Rs 5,928 crore, including its Rs 1,838 crore loan to cash-strapped Reliance Communications. 

The bank has identified loans to 49 companies, including two power firms run by GVK (totalling Rs 357 crore), GMR Chhattisgarh Energy Ltd (Rs 218 crore), and Monnet Power Company (Rs 199 crore), for sale.     

According to the offer, interested asset reconstruction companies (ARCs), banks, non-banking financial companies (NBFCs), and financial investors were allowed to conduct due diligence of these assets from February 25. Interested buyers will have to submit indicative prices at which they want to buy these assets.  

BoB’s largest asset for sale in this list is the loan to RCom. The bank’s decision to put its assets in RCom on the block comes after the board of RCom early in February decided to opt for debt resolution through the National Company Law Tribunal (NCLT). 

Observers, however, point out that sale of this loan could be a challenge as an interested buyer would ask for a substantial discount, especially as the company’s bid to sell its towers, fibre and spectrum assets has failed.  

RCom’s international bonds worth $300 million have been rated D (standing for default) and are priced at a discount of over 75 per cent of the par value. Many observers say this could be the benchmark for potential bidders for the BoB loan. 

The Business Standard reported

ET: Resolution Professional contests ED’s seizure of Gitanjali Gems’ assets

27 February 2019: The resolution professional overseeing Gitanjali Gems has contested the Enforcement Directorate’s seizure of the company’s assets on the grounds that the action has disrupted the insolvency resolution process.

The RP asked the National Company Law Tribunal to direct the ED to release the confiscated assets including jewellery and property so that they can be evaluated independently in accordance with the bankruptcy code and an information document can be submitted to prospective bidders. The ED initiated a probe into the company following the alleged fraud at Punjab National Bank and filed charges against fugitive businessman and founder Mehul Choksi.

The company’s committee of creditors, which comprises representatives from 30 banks, is of the view that the assets in the ED’s custody are the “suspected proceeds of crime” but until there is a conviction, they should be left free for valuation, according to a person briefed on the matter. The committee has met twice since the insolvency process began but has been unable to make any progress towards resolving the claims of the creditors in the absence of access to the company’s records, according to the person. The claims of financial creditors against the company amount to Rs 6,000 crore.

The charges pertain to alleged diversion of funds through offshore companies by Choksi, who obtained letters of credit from state-run PNB to pay overseas suppliers and then refused to make good the payments.

The ED’s case under the Prevention of Money Laundering Act predates ICICI Bank’s filing of insolvency proceedings against the company. The tribunal admitted ICICI Bank’s plea in October last year and approved the appointment of Vijay Kumar Garg of Duff & Phelps as the resolution professional.

A spokesperson for Duff & Phelps declined to comment on the matter.

The tribunal recently acted on a similar plea by the resolution professional of Sterling SEZ, which is undergoing insolvency proceedings and is being investigated by the ED, and ordered the agency to free the company’s attached properties and allow them to be valued. Sterling’s promoters, the Sandesaras, are also accused of fleeing India to avoid criminal prosecution by the probe agency.

Choksi had been absconding even before the alleged fraud at PNB was officially called out by the lender. The authorities have sought to expedite his extradition from Antigua where he has obtained citizenship.

The Economic Times reported

NIE: RBI to move NCLAT against order to stop declaring IL&FS loans NPA

27 February 2019: The Reserve Bank of India (RBI) is considering moving the National Company Law Appellate Tribunal (NCLAT) over its order directing lenders to refrain from classifying crisis-hit IL&FS-owned companies’ loans as non-performing assets (NPA) without its approval.

On February 22, PTC Financial Services had filed an application with the NCLAT seeking a temporary dispensation for IL&FS firms that would have been classified as NPAs. Though the case pertained to one category of the IL&FS entities tagged “Amber”, the tribunal passed a blanket order for all the group firms. NCLAT directed financial services firms and banks to seek approval before terming IL&FS group loans as NPAs. 

As per RBI regulations, loans whose principal and interests are overdue for more than 90 days as per the terms, have to be classified as NPAs and appropriate provisioning made. The NCLAT order goes against the RBI regulations, and would force banks to go against the norms. Earlier, the RBI had instructed banks to declare some accounts of the group as NPAs in line with its guidelines. 

This impasse has resulted in the central bank seriously considering an appeal on the NCLAT order restraining the classification of these firms as NPAs. “The RBI has expressed its disagreement with the NCLAT order. It is considering moving against the NCLAT order as it is not in lines with the RBI guidelines,” a senior official in the Ministry of Corporate Affairs said.

However, Corporate Affairs Secretary Injeti Srinivas justified the NCLAT’s ruling, pointing out that it was a one-off order and made keeping in mind the “national interest”. 

Speaking on the sidelines of a CII event, Srinivas went on to add that out of the 100 IL&FS companies that need classification based on the risk, every single one would be saddled with high risk or medium risk profiles. About 22 entities of the debt-ridden group are currently servicing their payment obligations.

“I think a lot of headway is being made and… in the next few months, the first phase of resolution should be completed,” Srinivas observed. So far, the outstanding loans of the IL&FS group stand at about Rs 60,000 crore, while its overall debt is over Rs 91,000 crore.  

The New Indian Express

ET: Bank of Baroda plans international auction of Rs 1,838 crore RCom debt

27 February 2019:  Bank of Baroda(BoB) has lined up plans to sell its Rs 1,838.16 crore debt in beleaguered Reliance Communications (RCom) through an international auction, and is likely to float a tender for the same shortly, two people aware of the matter said. 

Bank of Baroda, it is learnt, has classified its RCom exposure as a non-performing asset ( NPA), and will shortly invite expressions of interest (EoIs) from potential buyers keen to pick up the debt. 

These latest overtures come in the aftermath of RCom recently announcing plans to move the insolvency tribunal, seeking bankruptcy protection as its lenders haven’t received any proceeds from its asset monetisation plans over the past 18-odd months. 

In a separate development, the Telecom Disputes Settlement & Appellate Tribunal (TDSAT) has asked the telecom department (DoT) to reconsider approval for RCom’s pact to sell spectrum to Reliance Jio, since the liability of past spectrum-related dues, it said, lies purely with the seller (RCom) and not the buyer of airwaves (Jio). The buyer, it said, cannot be held liable until the airwaves trade has actually transpired. 

The DoT had refused to clear the spectrum sale after Jio said it won’t be held liable for RCom’s past dues. RCom had, subsequently, sought a clarification from the telecom tribunal on the spectrum trading rules. 

RCom is now expected to move Supreme Court to seek enforcement of the telecom tribunal verdict. 

A senior DoT official though ruled out a non-objection certificate (NoC) to the spectrum trading deal, on grounds that “all previous guarantees extended by RCom are now infructuous as the Anil Ambani-led telco had announced plans to move NCLT, seeking bankruptcy protection. “We are not giving any NOC until there is more clarity,” the official said. 

Meanwhile, in so far as auctioning its RCom debt goes, Bank of Baroda, is likely to rely on global auction pricing trends, where the existing debt by a bank is benchmarked to the value of existing bonds or other money instruments in play in the overseas market of the borrowing company — in this case, RCom. 

RCom has outstanding overseas bonds of $300 million (Rs 2100 crore), in the global market, but since these bonds have a `D’ or `default’ rating, they are likely to be priced at a minimum discount of 75% of the par value. 

Accordingly, international bidders lining up for BoB’s RCom debt are likely to quote a bid that is at least 75% discounted in line with the current market value of the Anil Ambani-led company’s overseas bonds. 

In such a scenario, Bank of Baroda can hope to get a maximum bid of around Rs 450-460 crore, roughly a fourth of Rs 1,838.16 crore exposure in RCom or even less,” said the second person cited. 

At press time, RCom and BoB did not reply to ET’s queries. 

Industry experts though said it remains to be seen whether Bank of Baroda will be ready to take such a hefty haircut in case of its RCom exposure. 

A person aware said taking a hair-cut might be “the best option for Bank of Baroda,” with no concrete developments on RCom’s asset monetisation ever since the telco entered the strategic debt restructuring (SDR) process in June 2017.

The Economic Times reported

FE: Bhushan Power : Lenders urge NCLT not to give operational creditors further hearing

27 February 2019: BPSL’s operational creditors have moved a series of applications to NCLT seeking to attract its attention on a range of issues including alleged trimming of the operational creditors’ list by the resolution professional and not getting copies of the resolution plan, among others.

Apprehending further delay in the resolution process, lenders to Bhushan Power and Steel (BPSL) on Tuesday urged National Company law Tribunal (NCLT) not to give operational creditors any further hearing as the adjudicating authority proceeds to approve the resolution plan for the debt-ridden steelmaker.

Senior counsel Ramji Srinivasan, appearing on behalf of the Committee of Creditors (CoC), said that more than 570 days have gone past since NCLT’s principal bench admitted insolvency proceedings against BPSL and each day, lenders are incurring a Rs 12 crore loss for their exposure to the insolvent firm.

“BPSL has 1,778 operational creditors. It will take a hell lot of time to hear out their applications. They should also not have any grudge since they will have to take only 50% haircut compared with 60% by the financial creditors,” Srinivasan said.

BPSL’s operational creditors have moved a series of applications to NCLT seeking to attract its attention on a range of issues including alleged trimming of the operational creditors’ list by the resolution professional and not getting copies of the resolution plan, among others.

NCLT’s principal bench admitted on July 26, 2017, Punjab National Bank’s plea for initiation of the corporate insolvency resolution process (CIRP) against BPSL. In July last year, lenders voted in favour of JSW Steel’s resolution plan for BPSL, rejecting Tata Steel’s offer.

JSW Steel has offered to pay Rs 19,350 crore to the financial creditors of the debt-ridden BPSL, implying a near 60% haircut for lenders. Apart from this, the Sajan-Jindal promoted company has offered to pay operational creditors a sum of Rs 350 crore against their admitted claims of Rs 733 crore.

The NCLT on Tuesday said it would hear the matter on March 5 and decide whether notices are to be issued to the operational creditors or not, and also on whether other parties would be served notice on their applications.

Paving the way for JSW Steel to take over BPSL, National Company Law Appellate Tribunal (NCLAT) on February 4 had dismissed Tata Steel’s objections that lenders had given the Sajjan Jindal-led firm undue chances to revise its bid even after declaring Tata Steel as the preferred bidder.

In its order, NCLAT also asked the resolution professional to submit the best plan to the NCLT and asked the adjudicating authority to pass an order after evaluating the bid and keeping in mind the interests of operational creditors.

A clutch of 34 financial creditors have claimed Rs 47,303 crore from the company as on January 3, 2019, of which, the RP has admitted claims worth Rs 47,150 crore. Operational creditors, numbering 1,778, have claimed Rs 2,320 crore from BPSL though the admitted amount is Rs 733 crore.

The Financial Expresses reported

BS: NCLAT asks Monnet Power Resolution Professional to consider BHEL’s claims

26 February 2019: The National Company Law Appellate Tribunal (NCLAT) on Tuesday asked the Resolution Professional (RP) of Monnet Power Company to consider the claims of Bharat Heavy Electricals Limited (BHEL) in entirety if the latter was able to prove the same on the basis of “accounts and evidence”.

The RP of Monnet Power had rejected BHEL’s claim of Rs 977 crore along with interest, following which BHEL had approached the Mumbai bench of National Company Law Tribunal (NCLT). The NCLT Mumbai on October 12 said that the RP had “wrongly disallowed the substantial claim in its entirety”. It had then asked the RP to re-examine BHEL’s claim based on the accounts and evidence that the company presented. “If the evidence corroborated the claim, the same should also be taken into account while finalising the total claim of BHEL,” NCLT Mumbai had said.

Aggrieved by the NCLT order, the RP had approached NCLAT which reaffirmed the NCLT Mumbai bench’s October 12 order and asked the RP to follow the tribunal’s order.

Monnet Power owes around Rs 6,000 crore to a consortium of lenders, including State Bank of India and Punjab National Bank.

The Smart Investor Business Standard reported

FE: Under scanner! Finance ministry asks PSBs to submit asset sale details to ARCs

27 February 2019: The finance ministry has asked public-sector banks (PSBs) to submit details of their sales of stressed assets to asset reconstruction companies (ARCs) between FY12 and FY18 to scan for potential irregularities.

Bankers said the move came amid suspicion that some bad assets could have fetched more but were sold to ARCs below market value due to potential collusion of bankers and promoters of the stressed firms. An official source said the details were sought to assess the efficiency of the mechanism through which such assets were sold to ARCs before the insolvency and bankruptcy code (IBC) was tapped by the lenders to resolve bad loan cases.

The bankers said the circular sent by the department of financial services last week has sought information on stressed asset accounts of Rs 50 crore and above sold to ARCs.

Analysts said proving irregularities, however, could be easier said than done, due to the wide subjectivity involved in the valuation process. Manoj Kumar, head (M&A, Transactions and Insolvency) at consultancy firm Corporate Professionals Capital said, “It may be the right thing to review the distressed loans transferred by banks to ARCs to judge the fairness of such transactions but practically it is very difficult to determine the realisable value of such distressed loan accounts.”

There are several factors which determine the possible realisation from bad assets, such as the scope of revival, value of securities, risks of litigation and timelines of resolution etc. “In fact, the new insolvency resolution mechanism, which is quite transparent and effective, has also given varied realisation and the ratio of resolutions to liquidation is approximately 1:2. Bankers have to take all these risks and facts into account while deciding on transfer of loan accounts to ARCs,” Kumar added.

Although haircuts in the resolution of stressed assets under the IBC have been as much as 52% in the 79 cases that were resolved by December 2018, the code has proved to be far superior than the tools used earlier. According to a recent RBI report, banks recovered 41.3% of their claims in cases where resolution took place under the IBC in FY18, against just 12.4% through other mechanisms such as SARFAESI Act, Debt Recovery Tribunals and Lok Adalats. The recovery under the IBC improved further this fiscal.

As for ARCs, they have had limited success in resolving the assets they purchase. So they have only been able to offer low prices to banks — prices which many lenders were reluctant to accept. Consequently, ARCs could buy only about 5% of total non-performing assets (NPAs) at book value over FY15 and FY16, according to an analysis in the economic survey for FY17. Also, the fee structure of the ARCs was tweaked in 2014, requiring these companies to pay a larger proportion of the purchase price up-front in cash (at least 15%) and the rest through securities receipts.

The Financial Express Reported