5 March 2019: After Essar Steel, now Essar Power (EPL) has been taken to the National Company Law Tribunal (NCLT), Ahmedabad, by one of the lenders L&T Infrastructure Finance Company on Tuesday.
5 March 2019: The Supreme Court is scheduled to start hearing in the power, sugar, and shipping companies challenge to the Reserve Bank of India’s (RBI) February 12 circular from Wednesday. With a total exposure of nearly Rs 2 trillion in the power sector alone, companies hoping for a verdict in their favour may have to face some disappointment, experts said.
5 March 2019: The government has allowed trustees, estate administrators, persons authorised by a company’s board of directors etc to initiate corporate insolvency resolution process (CIRP) against a corporate debtor before the NCLT, on behalf of financial creditors under the Insolvency and Bankruptcy Code (IBC), 2016.
In a notification, the ministry of corporate affairs (MCA) said “a guardian, an executor or administrator of an estate of a financial creditor, a trustee (including a debenture trustee) and a person duly authorised by board of directors of a company” may file an application for initiating CIRP against a corporate debtor before the adjudicating authority, on behalf of the financial creditor.
Analysts said the MCA notification helps clear the ambiguity regarding who can approach NCLT for CIRP.
Nangia Advisors (Andersen Global) director (Regulatory) Sumit Naib said, “It is important to note that this notification does not intend to amend any provision of the Act or the rules framed thereunder. Given the nature of the notification, it should be considered as a clarification issued by the ministry to address the ambiguity”.
5 March 2019: Crisis-hit Jet Airways (India) Ltd has pledged its fixed deposits (FDs) with various banks, totalling ₹1,500 crore, to borrow ₹225 crore from the State Bank of India (SBI), loan documents reviewed by Mint show.
The airline has the option to borrow more from SBI with the same FDs as security.
The airline decided to borrow against the FDs rather than redeem them because the deposits continue to earn a higher interest than what Jet has to pay to SBI, a person aware of the loan transaction said on condition of anonymity.
Since 8 February, lessors have grounded at least 23 planes because of non-payment of rent. In the past few months, Jet has struggled to pay dues to banks, vendors, lessors and employees, and has seen a series of credit ratings cuts. It has recorded losses of more than ₹1,000 crore in each of the previous three quarters, and is expected to post a loss in the March quarter too.
“Banks were reluctant to sanction a term loan to Jet Airways without gaining exclusive rights on the airline’s interest-yielding cash deposits or appreciating assets or equity share pledges,” the person cited above said. “Finally, SBI agreed to disburse a term loan after Jet Airways allowed the bank to pledge all its FDs with exclusive rights. Jet Airways may raise more capital from banks and stakeholders as part of the overall resolution plan.”
A negative net worth and several credit rating cuts have forced what was once India’s premier private airline to borrow against FDs, usually the last resort for companies facing liquidation risks or having no creditworthy assets.
Lenders typically demand secured assets with assured returns only when they suspect the borrower’s ability to repay the loan or the company has no other income-yielding asset or has all other assets pledged for other loans.
According to the latest loan documents, Jet Airways has given “first and exclusive” rights on all its FDs to SBI for securing the loan.
SBI has given Jet Airways the term loan at an interest rate of 6.25%, to be repaid by 29 April 2019. According to the loan documents, Jet Airways will have to pay a total of ₹250 crore to SBI by the time the loan is repaid. The loan was sanctioned after the agreement was signed on 31 January.
Jet had a total debt of ₹9,610.16 crore as of 31 December. The carrier had a negative net worth of ₹10,370.24 crore on that date.
Ratings company Icra Ltd has downgraded Jet Airways’ credit ratings in September, October, December 2018 and January 2019.
Emails sent to Jet Airways and SBI remained unanswered.
“The money will be used by the airline primarily to fund its core businesses, which include cost of flying, parking and paying salaries to the staff, and avoid further grounding of aircraft,” said the person cited earlier.
According to the loan agreement, SBI has the right to take all benefits of the FDs and their accrued interest incomes, if the airline fails to repay the loan. SBI, the biggest lender to Jet Airways, said on 17 January that the airline’s lenders were considering a plan to resolve its debt issues.
Mid-February, Jet Airways, after several attempts at finding help to rescue the carrier, approved a bailout plan aimed at making its lenders the largest shareholders and fixing a near ₹8,500 crore funding gap.
On 23 February, its board approved the conversion of some of the debt into equity, resulting in founder and chairman Naresh Goyal’s holding falling from 51% to below 20%.
On Friday, Goyal agreed to step down from the airline’s board and surrender his directorial powers.
The airline’s defaults and rising expenses on account of higher jet fuel costs and increased competition in the private civil aviation space have forced it to scrap on-board freebies it used to offer to its passengers earlier.
5 March 2019: The government is planning to promulgate an Ordinance amending the Insolvency and Bankruptcy Code (IBC) and adding a chapter on cross-border insolvency. This would give comfort to foreign investors in India and vice-versa.
A source in the government said, “We plan to get a Cabinet nod for this soon.” The Ordinance will be based on the UNCITRAL model law for cross-border insolvency.
Now, only the next government will introduce a Bill for this in Parliament. Lok Sabha elections are supposed to be held within the next two months.
A cross-border insolvency law empowers foreign creditors get money lent to Indian corporate entities. Indian companies can also claim their dues from foreign companies.
Currently cross-border insolvency provisions are in sections 234 and 235 of the IBC. Since they are not notified yet, they are not enforced.
There are other limitations as well. For now, cross-border insolvency can be enforced only if India enters bilateral treaties with foreign governments, said an official at the Ministry of Corporate Affairs, who did not want to be named.
Finalising these treaties takes long, and as each treaty is different, there is uncertainty among foreign investors. This also creates ambiguity for Indian courts and the National Company Law Tribunal (NCLT), which has to treat each case separately.
Officials in the know said the government wants to create a separate provision for insolvency that would be globally accepted and well organised.
They added the government’s aim was to improve the business environment in the country.
This would reduce time for exchanging information between the two countries. Officials said this would give a signal to foreign investors and multi-lateral agencies such as the World Bank about the robustness of the country’s financial sector reforms.
India was ranked 77 among 190 countries in the Ease of Doing Business ranking by the World Bank in 2018, against 100 in 2017. A panel, headed by Corporate Affairs Secretary Injeti Srinivas, recommended using the UNCITRAL model law.
The model law deals with four major principles of cross-border insolvency — direct access to foreign insolvency professionals and foreign creditors to participate in or commence domestic insolvency proceedings against a defaulting debtor, recognition of foreign proceedings and provision of remedies, cooperation between domestic and foreign courts and domestic and foreign insolvency practitioners, and coordination between two or more concurrent insolvency proceedings in different countries.
The Model law has been adopted by 44 countries, including the US, the UK and Singapore.
In the past, the IBC has been amended to include Section 29(A) that bars errant promoters from bidding for companies undergoing resolution under the code. This ordinance also granted homebuyers the status of as financial creditors.
In a second amendment to the Code, the government also allowed the withdrawal of application after a case was admitted in the NCLT if 90 per cent of lenders approved it.