BS: Servicing loans without default: L&T Halol Shamlaji Tollway tells NCLT

4 March 2019: L&T Halol Shamlaji Tollway, a special purpose vehicle (SPV) of L&T Infrastructure Development Projects, has informed the National Company Law Tribunal’s (NCLT’s) Chennai Bench that its debt with a consortium of banks has been restructured and is being serviced properly, as against the allegations in an insolvency petition by Oriental Bank of Commerce (OBC).

The NCLT has directed the Bank to submit all the documents related to the matter without fail on March 8, 2019. OBC has earlier moved the NCLT, Chennai, against the SPV under Section 7 of the Insolvency and Bankruptcy Code (IBC) 2016, under which financial creditors may file application for initiating Corporate Insolvency Resolution Process against the corporate debtor. 

L&T Halol has submitted its counter on Monday, with the Bench comprising of BSV Prakash Kumar, member (Judicial) and S Vijayaraghavan, technical member, saying while the consortium of banks has approved the loan in May, 2009, it was restructured in 2017 under a Strategic Debt Restructuring through which the lenders have converted part of their loans into equity. 

The counsel appeared for L&T Halol Shamlaji Tollway told the Bench that the debt was being services currently and there was no default as of now. However, the action is now being initiated based on the previous agreement in 2009, he alleged, challenging the petition.

The Bench sought details from the bank on whether the account has been regularised now, for which the counsel appearing for the bank requested time to respond. The Bench directed OBC to submit all the required documents. As a member of consortium, OBC has sanctioned a term loan of Rs 155 crore for the road project.

According to an ICRA report last year, through the SDR scheme, the lenders took a 51 per cent equity stake in the project by converting Rs 406 crore of the project debt (out of total outstanding of Rs 1,004 crore) in February 2017. The consortium of lenders includes Allahabad Bank and OBC.

The Business Standard reported

TN: IL&FS gave loans despite knowledge of risk, then wrote off a few: Audit report

4 March 2019: The directors of the embattled IL&FS Group ignored its own credit risk management team’s advice and went on extending loans worth nearly Rs 2,000 crore to companies facing acute financial stress, an audit report has said.

In a damning interim report, audit firm Grant Thornton has found that group’s financial sector subsidiary, IL&FS Financial Services Ltd (IFIN), gave loans to about 16 stressed entities in complete disregard of its own credit risk committee observations. This not only resulted in Rs 2,000 crore worth of loans turning bad but also forced IFIN to write off debts given to seven entities.

Interestingly, IFIN offered to clear loans to third parties even though its own financial condition was under stress.

“In spite of the financial stress in IFIN and negative assessment by the CRMG (Credit & Risk Management Group) team, loans were lent to these companies who were in financial stress themselves,” the Thornton interim report said.

A quick study of list of beneficiary entities of IFIN largesse reveals that it includes who’s who of stressed entities in the infrastructure and real estate space. They are Electrosteel Steels Ltd, Best and Crompton Engineering Ltd, Parsvnath Developers, Skil Infrastructure and Gayatri Projects. Some of these entities were also taken to bankruptcy courts and thus had also functioned under changed management now.

Thornton was engaged by the new government-appointed Board of Directors (BoD) of IL&FS to conduct a special audit for all high-value transactions undertaken by IL&FS Ltd and few of its group companies for the period commencing from April 1, 2013, to September 30, 2018.

The report said that during the review period, loans sanctioned by the Committee of Directors (CoD) “appears to be unusual” as it was highlighted by the risk team of IL&FS that recipient companies were under stress.

The CRMG team provided negatives remarks or recommendations in the credit approval memorandum (CAM) based on their assessment of the risk profile of the borrowers. “However, even after the negative remarks or recommendations, the loans were sanctioned to the said parties, basis the approval provided by the CoD,” it said.

Regarding the loans provided to Dev Rishabh Real Estate Pvt Ltd (Era Group), the report quoted the CAM for the realty player that said the recipient was facing liquidity issues. Further, there were various legal cases and winding up petitions against the group, it added.

Similarly, Shiva Shelters and Construction Pvt Ltd (Siva Group) was “going through tough times which has resulted in liquidity constraints and impacted the servicing of its outstanding”. On top of it, as per an RBI report, it had been recommended to provide 100 per cent provisioning to Siva Group’s exposure.

The extent of the callousness could be understood from the fact that IL&FS had written off seven out of 18 cases mentioned in the report. This at a time when the IFIN itself faced financial stress has surprised many. An earlier, Serious Fraud Investigation Office (SFIO) report had pointed fingers on the then management of IL&FS for the mess that the group funds itself now.

The mess at IL&FS came to light last year when a sudden default by a few group companies enlivened threat of a complete collapse of the infrastructure conglomerate.

Last year, the Central government superseded the management of the beleaguered company via a National Company Law Tribunal (NCLT) order and appointed a six-member board led by Uday Kotak, MD & CEO of Kotak Mahindra Bank, to restore its financial solvency.

Key public sector lenders and undertakings, such as the LIC and the SBI have a 25.34 per cent and 6.42 per cent stake, respectively, in the firm which has around Rs 91,000 crore in long-term debt. The credit crunch has led a few of the company’s subsidiaries to default in servicing some inter-corporate deposits. Consequent to defaults, a significant impact was felt in the capital market. This also triggered what is now known as the NBFC crisis.

Times Now reported

ET: Home buyers want to take over debt-laden property developers

4 March 2019: Staff cooperatives have already registered their presence in the list of potential acquirers of Indian companies put into administration. In a first, homebuyers are now seeking to take over property developers sunk in debt, claiming they have the biggest at stake in projects where the bulk of their savings are stuck. 

An association of apartment buyers has submitted a resolution plan to revive a Delhi-based builder, Kindle Developers, which failed to deliver homes in Noida after accepting payments from flat buyers. The move comes after Parliament passed in August an amendment to the bankruptcy bill, allowing homebuyers to be treated on a par with secured financial creditors. 

The builder is in the bankruptcy process after a homebuyer, Amit Kumar Malik, dragged the company into administration for its failure to deliver the apartment promised, two people with direct knowledge of the matter told ET.

“This would be the first case under the bankruptcy code where homebuyers have submitted a resolution plan,” said Anil Goel, the founder of AAA Insolvency, a Delhibased firm involved in bankruptcy cases. “For real estate companies, the biggest problem is the trust deficit.” An email sent to Kashi Viswanathan Sivarman, the resolution professional and a partner of AAA Insolvency, remained unanswered until the publication of this report.

The NCLT’s principal bench in New Delhi had admitted the case on March 9 last year. 

The builder was expected to develop a 700-apartment residential project called Subh Kamna Lords in Noida Sector 79. The estimated project cost was Rs 300 crore. But the Noida Authority cancelled the project and claimed about Rs 70 crore in default charges. This liability is also part of the insolvency proceedings. “The (buyers’) association has proposed in the resolution plan that it will complete the project by itself after taking the balance payments from home buyers who are also members of the association,” said an executive.

The Economic Times reported

ET: IL&FS: L&T Fin to move SC against NCLAT’s order on IL&FS debt – The Economic Times

4 March 2019: L&T Finance is challenging in the apex court a bankruptcy appeals bench ruling that allowed Rs 16,000 crore of IL&FS debt to be categorised as ‘amber’, arguing that the contract has no room to qualify the stressed financier’s outstanding loans based on solvency. 

The National Company Law Appellate tribunal (NCLAT) approved three loan categories – green, amber and red — based on the ability of a particular company to repay debt and interest. L&T Finance has Rs 1,800 crore of debt exposure to the IL&FS group companies or its special purpose vehicles (SPV). 

“SPV loans getting classified under different categories have no basis in the contract,” said a source close to the development. “The company is challenging the NCLAT order in the Supreme Court.” 

The NCLAT has asked the IL&FS board to ensure that companies with positive cash flow remain as going concerns and that their operations are not disrupted. Money from escrow accounts of SPVs will remain in individual accounts after meeting the operational expenses. 

However, all companies of the group that fail to meet cash flow solvency test will remain under the moratorium granted by NCLAT. Approximately, the amount of loan that will fall under the Amber category is Rs 16,000 crore. Loans under ‘red’ and ‘green’ categories amount to around Rs 65,000 crore and Rs 7,000 crore, respectively. 

“None of our six projects are in the red list,” said Dinanath Dubhashi, MD of L&T Finance. “The court and IL&FS have confirmed our view that none of our projects will have losses.” 

L&T Finance did not comment on the likelihood of its appeal before the apex court. 

L&T Finance has exposure to six road SPVs and all of them are operational. Out of these six, four are annuity projects, where money comes directly from the government: Two are toll projects. 

According to the IL&FS resolution framework report, green, amber and red are categories of companies based on their ability to meet payment obligations over the coming 12 months. 

Companies that are able to pay all obligations have been categorised as green, companies only able to meet operational payments and senior secured debt obligations are categorised as amber and those that are unable to meet obligations to even senior secured financial creditors are categorised as red. According to the plan, IL&FS can service up to of Rs 7,000 crore immediately. 

The plan has assured that the seniority of SPV project lenders will be maintained during asset monetisation and these project lenders will get priority in kilter with the repayment waterfall mandated in law.

The relevant section of the law says that senior secured creditor loans are cleared first and any surplus that remains thereafter is given to unsecured or subordinated creditors, and thereafter to the equity owners.

The Economic Times reported