BS: RBI circular has one-size-fits-all approach, power firms tell SC

6 March 2019: The Reserve Bank of India’s (RBI’s) February 12, 2018 circular asking banks to move insolvency petitions against large non-performing assets (NPAs) that have not been resolved, is based on a ‘one-size-fits-all’ approach without taking into consideration factors such as the reasons for non-payment, power companies told the Supreme Court on Wednesday.

There is no distinction between the kinds of debtors, the reasons for non-payment of the debt or consideration for external factors influencing the sector, senior advocate Abhishek Manu Singhvi, appearing for one of the power companies told the court. 

The discretionary power of banks to decide whether an account would turn non-performing asset (NPA) or not had also been taken away by the RBI owing to the circular, he said.

A two-judge Bench of Justice Rohinton Fali Nariman and Justice Vineet Saran is hearing a bunch of petitions moved by power, sugar, and shipping companies challenging the RBI’s circular. 
On February 12 last year, the RBI had asked banks and other lenders to either execute a resolution plan for big stressed accounts or file insolvency petitions against them in the National Company Law Tribunal (NCLT).  

Citing that in their case, the supply side as well as the demand side was under the watchful eyes of regulators, the power companies on Wednesday said that the sector should have been exempted from the RBI’s diktat.

“On the supply side, there is a shortage of coal. How do I get coal? And if I get coal, whether I will get linkages or not is another question. On the demand side, I cannot increase my tariff. Even if I approach the regulator to seek permission to do the same, it would take at least 2-3 years,” the counsel appearing for one of the power companies told the court.

Even within the power sector, there was a huge difference between the condition of public and private companies as the dues of the latter was not cleared on time by states and power distribution companies (discom) on time, he said.

The apex court is scheduled to resume hearing the companies on Thursday. It is hearing these petitions by dividing them into three categories. There are some companies that have challenged the validity of the Insolvency and Bankruptcy Code. The second group of companies have challenged the constitutional validity of the circular, and the third group, which consists mostly of power companies, have sought temporary relief from the circular only for themselves.

The Business Standard reported

ET: Operational creditors with over Rs 1 cr dues from Essar Steel appeal to ArcelorMittal for payment

6 March 2019: A forum of operational creditors with over Rs 1 crore in admitted dues from Essar Steel has appealed to ArcelorMittal which is in the process of acquiring the debt-ridden company, to pay their dues as well.

Last October, a committee of Essar Steel creditors had picked ArcelorMittal to acquire the 10-million tonne steel mill for over Rs 42,000 crore. But the original promoters, the Ruias made a counter bid with Rs 54,384 crore offer later and was rejected by the lenders and the resolution professional.

The NCLT Ahmedabad has been directed by NCALT to conclude the process by March 8.

ArcelorMittal’s resolution proposal also includes an additional Rs 8,000-crore of capital injection into the company to improve operational efficiencies, increase production and deliver enhanced levels of profitability.

In its appeal, a forum of operational creditors with over Rs 1 crore of dues, said it is unfair that ArcelorMittal is not paying a penny to such creditors.

Essar Steel’s operational creditors with large dues include the national oil marketer IndianOil with over Rs 3,500 crore of dues.

“Our appeal is that ArcelorMittal may graciously and voluntarily modify their offer a bit and pay us also if not in one go at least in installments, over the next 12 months,” the forum said.

Noting that the buyer is paying in full those operational creditors with less than Rs 1 crore dues, the forum said “it’s extremely discriminating and wholly arbitrary. The operational creditors with over Rs 1 crore dues are being singled out as if they are being punished. What crime have we committed?”

Late last month, the National Company Law Appellate Tribunal (NCLAT) had directed the NCLT Ahmedabad to take a decision by March 8 on the Rs 42,000-crore bid submitted by ArcelorMittal for the acquisition of Essar Steel.

The resolution process is nearing 600 days instead of the mandated 270 days.

Essar Steel runs a 10-million-tonne steel mill at Hazira in Gujarat and owes over Rs 49,000 crore to over two dozen banks led by the SBI and has been under the bankruptcy proceedings since June 2017.

The Economic Times reported

BS/BTVI: Hotel Leelaventure hits 10% upper circuit on reports that RIL may buy stake

6 March 2019: Shares of Hotel Leela Venture hit the  upper circuit of 10 per cent at Rs 12.24 apiece on the BSE on Wednesday, after the company said it is evaluating various options for investment in the company or for sale of company’s assets. According to news channel BTVI, Reliance Industries (RIL) is eyeing Hotel Leela Venture.

“The company, in consultation with the lenders, is evaluating various options and there is no binding contract with any investor as on date either for investment in the company or for sale of company’s assets,” Hotel Leela Venture said today in a regulatory filing on clarification in news report. (READ THE CLARIFICATION HERE)

JM Financial Asset Reconstruction Company Limited (JMARC) has filed an application with National Company Law Tribunal (NCLT) against Hotel Leela Venture, under section 7 of the Insolvency and Bankruptcy Code, 2016.

Hotel Leela Venture last week said that the company is continuing to engage with prospective investors for a resolution. 

Reliance Industrial Investments and Holdings Limited, a wholly-owned subsidiary of RIL, holds 18.53 per cent stake in EIH, which operates Oberoi and Trident Hotel brands.

Hotel Leela Venture has rallied 27 per cent in the past three trading sessions from Rs 9.67 on Thursday, February 28, 2019. In comparison, the S&P BSE Sensex has moved up 2 per cent during the period. A combined 808,000 equity shares changed hands on the NSE and BSE.There were pending buy orders for 894,000 shares on both the exchanges. On the other hand, RIL was up 2.4 per cent at Rs 1,267, the top gainer among the benchmark S&P BSE Sensex in intra-day trade.

The Business Standard/ BTVI reported

ET: HC to hear petition alleging Odisha government’s move to favour Tata Steel

6 March 2019:  A petition in the High Court of Orissa requires the state government to explain why it seeks to grant Tata Steel further iron ore mines when the steelmaker already has captive mines well above the prescribed cap. 

The HC is hearing a petition challenging the Odisha government’s recommendation to increase the prescribed area cap allowed to an individual player, from 10 sq km to 75 sq km. The matter will be heard again on 25 March 2019. 

The move will allow Tata Steel to participate in auctions. The PIL argument is that this would grant Tata Steel, already the beneficiary of a “disproportionate allocation of natural resources in the state”, an unfair advantage over other steelmakers in the state. Tata Steel already hold rights to area nearing 50 sq km, “which is 89 per cent of the total mining lease (area) ever allocated to steel companies,” claims the petition.

The Mines and Minerals (Development and Regulation) Act 1957, amended in 2015, sets 10 sq km as the limit for mining rights granted to an individual in a state. This may be relaxed for an individual, as has been done for Tata Steel and state-owned Odisha Mining Corporation and as long as the state justifies the grant. This time however, Naveen Patnaik’s government chose to ask the Centre for a sevenfold increase in the area limit itself.

The current PIL in the High Court of Orissa has been filed by journalist Bijaya Kumar Misra but this isn’t the first time that Tata Steel’s efforts to secure future raw material in the state has been challenged. Rival steelmaker JSW had moved the High Court of Delhi last year against Tata Steel’s participation in two tendered iron ore blocks that have since been withdrawn.

According to state officials, the Mineral Auction Rules 2015 is silent on the subject of total area, covered under Section 6 of the MMDR Act.

It has been almost a year since the Odisha government wrote to the Centre to increase this limit. The Centre, which has expanded the cap for bauxite allowing state-owned Nalco to operate a second mine and expanded similarly the cap for limestone mines in Maharashtra, has been unmoved by Odisha’s request. A senior official at the state’s directorate of mines, who asked not to be named, said the ball was still in the Centre’s court.

Tata Steel, which has captive rights to chrome, iron ore, and manganese in the state going back almost a hundred years, only commissioned its first steel plant in the state in November of 2015. It is currently ramping up the 3 mt plant at Kalinganagar to 8 mt per annum and has similar expansion plans for Bhushan Steel’s 5 mt plant in Angul which it acquired under the Insolvency and Bankruptcy Code. It currently about half a dozen iron ore mines in the state that also serve its Jamshedpur plant’s needs. Some of these will lapse in 2030.

While the HC of Delhi was still hearing the matter, the Odisha government decided to withdraw it notice inviting tender for Chandiposhi (of 33.7 million tonnes reserve) and Purheibahal (38.3 mt) iron ore deposits, rendering JSW’s petition infructuous. According to officials at the state directorate, at least 17 deposits ready to be auctioned have been withheld for now. But for a combined prospecting and mining lease, the state is yet to actually grant a lease for any of the five deposits auctioned since 2015.

Defending the state government’s right to lobby for the steelproducer, he said “Here’s a plant that has been put up, and is visible before our eyes. Is its wrong for the state to encourage value addition within the state? Unfortunately the state government could not grant Posco the Khandadhar deposit, before the act was amended.”.

Odisha, the country’s biggest producer, is also home to several sick steelmakers that it failed to supply captive raw material to. In 2012 the Supreme Court had ruled that Odisha had been “highly unreasonable and arbitrary” in denying Bhushan Power and Steel a promised iron ore deposit the huge sums the firm had invested in a steel plant. BPSL,recently acquired by Sajjan Jindal’s JSW under insolvency proceedings, and Bhushan Steel emerged successful bidders, for two iron ore mines auctioned in Odisha, only a month before being declared insolvent. This has also been challenged in the court.

The Economic Times reported

NIE: ABG Shipyard headed for liquidation as Liberty house gives up bid

6 March 2019:  The ABG Shipyard is likely to head for liquidation as Liberty house has given up on the bid for it.

“The Liberty house finally given up on the bid. The Committee of creditors (CoC) has already rejected its bid after it defaulted on the Amtek Auto,” a source familiar with the proceedings told this publication.

ABG Shipyard, the debt-laden shipbuilder, is among the first list of 12 companies that the Reserve Bank of India has directed banks to refer to the bankruptcy court immediately.

The consortium of about two dozen banks, led by ICICI Bank, has mandated SBI Caps for finding the buyer for their 51 per cent equity in ABG Shipyard.

After the bids were floated, London-based metals house Liberty House emerged as the sole bidder of ABG Shipyard, which is facing Rs 18,245 crore claims from financial creditors.

Liberty House offered Rs 5,600 crore for the bid, which would be payable only after the fifth year, with a rider that there would be no interest payment in the interim period. However, the bankers already had rejected the offer.

“Even before Liberty House became the sole bidder, it had already defaulted on payment in case of Amtek Auto. So, the CoC was not in favour of Liberty House and that means that the company would go for liquidation,” the source added.

Order on ABG Shipyard is reserved by the National Company Law Tribunal, Ahmedabad.

The New Indian Express reported

BS: Real estate firms move SC against ‘financial creditor’ tag for homebuyers

6 March 2019: Real estate companies such as Wave Group’s Wave Megacity Centre, among others, are said to have approached the Supreme Court challenging the government’s decision to grant homebuyers the status of financial creditors.

In their petition before the top court, these real estate companies have claimed that granting financial creditor status to all homebuyers and real estate allottees will complicate the situation as they will now have to accommodate all such people to the committee of creditors.

“These companies have been fighting battles on many fronts. Adding homebuyers to the mix has only added confusion. In fact, if they are not part of the legal process, the chances of them getting at least their money back is much more,” said a source close to a company against which insolvency proceedings are on.

The Parliament had, on August 11 last year, passed a Bill to amend the Insolvency and Bankruptcy Code 2016, allowing homebuyers to be treated as financial creditors.

The petition by real estate companies comes nearly a month after the top court had stayed further proceedings against Ansal Housing in a similar case. Hearing the petition moved by Ansal Housing challenging the government’s decision, a two-judge Bench of Justices Rohinton Fali Nariman and Vineet Saran had issued notice to the central government and stayed further proceedings against the company. The case is likely to be heard next on March 25.
“Even in the case of justifiable delay, the petitioner will be faced with no alternative but to refund amounts as demanded by such allottees that approach the National Company Law Tribunal (NCLT). This, in turn, would have a cascading effect and significantly hamper construction work of all ongoing projects being developed,” Wave Megacity Centre has said in its petition.

LM: ED finds nearly ₹10,000 crore worth of anomalies in IL&FS books

6 March 2019: The Enforcement Directorate (ED), which is probing an alleged money laundering case at Infrastructure Leasing and Financial Services Ltd (IL&FS), suspects that at least 10,000 crore was used for purposes other than stated ones, according to two people with direct knowledge of the matter. 

“A sum of  10,000 crore could have been routed or layered for other than their stated purposes,” said one of the two people cited above, requesting anonymity.

“The Enforcement Directorate is already probing the role of former chairman of IL&FS, Ravi Parthasarathy, former vice-chairman Hari Sankaran, two subsidiaries and 18 others for allegedly siphoning off funds from the books of the IL&FS group of companies.”

ED registered a money laundering case on 20 February based on an FIR by Economic Offences Wing (EoW) of the Delhi Police. The FIR alleges criminal conspiracy, funds diversion of  74 crore and is based on a complaint by Delhi-based Enso Infrastructure Pvt. Ltd.

“ED has already called the former directors of IL&FS for questioning. We are also examining the forensic report which has found that anomalies in funds to the tune of  13,000 crore. The anomalies include extending loans to companies flagged off by the risk assessment committee, instances of loans extended to related parties being written off and loans extended to one group company being used to pay off debt obligations of other companies,” said the second person, also requesting anonymity.

On 20 February, Grant Thornton India Llp submitted its forensic report to the Uday Kotak-led IL&FS board, which highlighted 10 anomalies in the books of IL&FS and its group companies. A copy of the report has been reviewed by Mint.

The report is also being examined by Serious Fraud and Investigation Office (SFIO), which has submitted two interim reports to the National Company Law Tribunal (NCLT), highlighting financial irregularities and has pulled up the auditors of IL&FS group companies for not proactively detecting financial irregularities.

The forensic analysis highlighted so-called conflict of interest and having in-adequate risk assessment measures. A sum of  2,270 crore was given as third-party loans and was utilized to provide funds to group companies out of which a sum of  1,150 crore was given to IL&FS Transport Network or ITNL.

Loans worth  2,502 crore given to borrowers were used to pay off existing debt obligations of other group companies.

The forensic report also found conflict of interest in transactions worth  94 crore. Funds were extended to promoters or entities of companies that were linked to directors and senior officials of IL&FS. There are six potential conflict-of-interest instances, the audit found. 

The LiveMint reported

TOI: ‘Insurers must provide for IL&FS hit’

6 March 2019: Chairman of the Insurance Regulatory and Development Authority of India (IRDAI), Subhash Chandra Khuntia, has said that insurers must make provisions on their exposure to IL&FS.

Although insurance companies were required to make provisions earlier, IRDAI’s reiteration comes in the wake of a tribunal order that IL&FS and group companies should not be classified as non-performing assets (NPAs). 

Addressing the media on the sidelines of the 20th Global Conference of Actuaries, Khuntia said that insurance companies need to be proactive to protect the interest of policy holders. He said that IRDAI required insurance companies only to invest in better rated companies.

“Now that the IL&FS rating has changed, they will have to keep a watch on what to do with those investments and make required provisions,” said Khuntia. 

He added that while insurers are required to ensure that they put money only in investment-grade bonds, the regulator expects them to use their own judgment and not go by the views of rating agencies alone. Khuntia said this in the context of IL&FS being a top-rated paper before it was downgraded to default category. 

Last month, the National Company Law Appellate Tribunal (NCLAT) had ordered that IL&FS and its group companies will not be classified as NPAs until further orders. Although the order did not give the rationale, many lenders feel that this is because of the moratorium on repayment that prevents IL&FS group companies from repaying.

Ensuring that the loans are not classified as NPAs will prevent lenders from initiating hundreds of separate recovery proceedings against the group companies. 

The IL&FS group has over Rs 90,000 crore of debt. A large part of this is with banks, insurance companies and mutual funds.

A report by audit firm Grant Thornton has identified irregularities in loans worth Rs 13,000 crore disbursed by the parent. 

On Tuesday, Khuntia said that the LIC will have to eventually pare its stake in IDBI Bank to 15%. This will be in keeping with IRDAI’s investment limit, which prevents an insurer from holding more than 15% in an investee company.

“They are preparing a road map and, when it is ready, they will communicate it to us,” said Khuntia.

Incidentally, the RBI has also said that LIC should divest stake in the bank in keeping with RBI’s norms for promoter shareholding. LIC’s investment in IDBI Bank will also force the lender to sell stake in its life insurance company — IDBI Federal Life Insurance. “This is something temporary (IDBI Bank stake in IDBI Federal Insurance). There are various methods to sort this out. Suppose they sell it, there should not be any conflict of interest,” said Khuntia.

He pointed out that IDBI Bank had already initiated plans to sell the stake in the insurer but they got shelved.Earlier, addressing the actuaries’ conference, Khuntia said the role of actuaries will increase manifold with the emergence of technologies like data analytics. “The role of actuaries is more important in innovating insurance products that are transparent and understandable to a common man,” he said.

The Times of India reported

FE: IDBI Bank seeks bids for Lanco Solar (Gujarat) plant

6 March 2019: Deloitte Touche Tohmatsu India, on behalf of IDBI Bank, has invited expressions of interest (EoIs) for the sale of a 30-megawatt (MW) solar power project in Patan, Gujarat, owned and operated by Lanco Solar (Gujarat) (LSGPL), according to a public notice.

The plant’s total debt outstanding as on October 8, 2018, stood at `346 crore. IDBI is the only lender to the project.

“IDBI Bank (IDBI or the lender), being the sole lender of the company has been authorised on behalf of the company to supervise the process of divestment of business undertaking on its own or through the authorised agent and it has appointed Deloitte Touche Tohmatsu India (DTTILLP), to act as the process advisor in relation to the aforesaid process,” Deloitte said in the notice. The last date for submission of EoIs is March 15.

LSGPL is a fully-owned subsidiary of Lanco Infratech, which is being liquidated under the corporate insolvency resolution process (CIRP). Lanco Infratech had been referred to the insolvency tribunal by IDBI Bank after the Reserve Bank of India (RBI) in 2017 named it among the 12 largest non-performing assets (NPAs) that banks were to resolve through the insolvency route.

In October, Care Ratings downgraded LSGPL to D, or default grade, from B, citing delays in the servicing of debt obligations by the company. “The delay in servicing of debt obligations by LancoSolar (Gujarat) follows the lower than envisaged generation levels at the project site leading to stretched liquidity position of the company. The generation was affected largely due to heavy monsoon in the area. Further, the generation from Chadiyana plant was affected due to some damage to the transmission line,” the rating agency said.

The company held a debt service reserve account (DSRA) of `16.93 crore as on March 31, 2018, and this was gradually utilised to repay the principal amount. “An amount of `5.54 crore remains unpaid by the company,” Care Ratings analysts wrote.

Bankers have been working on resolutions for a number of stressed power projects. Last month, banks met to discuss seven-eight projects and arrive at a final resolution with regard to Jaiprakash Associates-promoted Prayagraj Power Generation Company’s 1,980 MW Bara unit and SKS Chhattisgarh’s 1,200 MW Binjkote plant. Both are expected to be resolved by the end of the March quarter.

The Financial Express reported