BQ: Sterling Biotech Fraud Case: Court Allows ED To Seek Help From 21 Countries

23 March 2019: A Delhi court has allowed the Enforcement Directorate to send letters rogatory to 21 countries, involving the UK and the UAE, seeking assistance in the probe of a Rs 8,100 crore bank fraud case involving Gujarat-based Sterling Biotech Ltd.

Additional Sessions Judge Satish Kumar Arora granted permission to the agency on its plea seeking nod to send the LRs, also known as letter of request, to countries, also involving the U.S., China, Panama and Austria.

The LRs will also be send to Albania, where the court recently allowed the ED to send extradition requests, after its special public prosecutor Nitesh Rana informed that its two directors — Nitin Sandesara and Chetankumar Sandesara — have obtained the citizenship.

Another director of the firm, Hitesh Narender Bhai Patel, was detained in Albania’s capital Tirana on March 20 on the basis of an Interpol notice issued against him by the ED.

The application moved by ED’s advocate AR Aditya also sought to send the LRs in some other countries which included Singapore, Switzerland, Hong Kong, Indonesia, Barbados, Bermuda, British Virgin Islands, Cyprus, Comoros, Jersey, Lichtenstein, Mauritius, Nigeria and Seychelles.

It is alleged that the company took loans of over Rs 5,000 crore from a consortium led by Andhra Bank, which had turned into non-performing assets. The total volume of the alleged loan defraud is pegged at Rs 8,100 crore. The ED registered its case based on Central Bureau of Investigation charge sheet and is probing money laundering.

The accused are also being probed by the ED for allegedly bribing senior Income Tax department officials as part of an earlier criminal complaint. The agency has filed five charge sheets in this case till now and attached properties valued at Rs 4,710 crore.

The Bloomberg Quint reported

ET: The fund also sees opportunities in commercial real estate; money will be deployed over next 2-3 months

23 March 2019: Kotak Investment Advisors, which manages about $3.5 billion worth of assets, is set to begin deploying th e money it has raised in the past month via two funds that are backed by Abu Dhabi Investment Authority (ADIA). 

Big opportunity lies ahead in India in distressed assets and commercial real estate space,” said S Sriniwasan, managing director, Kotak Investment Advisors. “While we are in advanced talks with loan assets that have not yet reached NCLTs, we have also identified two office properties in Bangalore and Hyderabad.” 

Sriniwasan said, “We have significant viability to deploy up to 20% of the capital raised over the next two to three months.” 

The advisory arm of Kotak group has mopped up over $1 billion through the two funds as the company looks to invest in assets, which appear to be generating enough cash and where the banks are willing to take a reasonable haircut in debt. 

In the last one month, it has raised $625 million under Kotak Special Situation Fund, which is aimed at providing bespoke financial solutions and investment opportunity in companies that are negotiating settlements on stressed loans. Earlier this week it launched India Office Assets Fund, raising $400 million. 

UAE-based sovereign wealth fund Abu Dhabi Investment Authority has committed $500 million and $200 billion in the two funds. 

Sriniwasan has been managing alternative assets for the last one and a half decades. He favours changes in the country’s Insolvency and Bankruptcy Code, which has triggered a paradigm shift in how bad loans are dealt with. 

“The National Company Law Tribunal (NCLT) courts have passed orders, which defeat central purpose of IBC regulations. Moreover, the bidding process to buy bad loans should also be more transparent as there should be sanctity and strict adherence of bidding dates. Entertaining bids at any time, even after due date, discourages serious bidders to open their cards,” he said. “We should not allow board directors of erstwhile management to have access to CoC (Committee of Creditors) proceedings.” 

In light of the new amendment under 12A of IBC, if 90% of creditors agree, the company can be taken out of the IBC process. 

The risk of allowing erstwhile directors to COC proceedings is that the promoters will use the information to exercise 12A. As a consequence, serious bidders will be reluctant to bid aggressively. 

According to Sriniwasan, IBC caters to evolution of bond market as creditor protection encourages greater investor participation. This will lead to all varieties of investors coming, including into high risk bonds. “You are going to witness the birth of junk bond market in India”, he said.

The Economic Times

ET: Uttam Value Steels & Galva Metallics get new bids from CarVal consortium

23 March 2019: The twin distressed assets of Uttam Value Steels and Uttam Galva Metallics have received a fresh bid from a consortium led by CarVal Investors, even as SSG Capital Management sweetened its offer, a person close to the lenders to the companies said.

CarVal Investors, the investment arm of US-based agri group Cargill, has bid for the assets along with Asset Reconstruction Company (India) Ltd (Arcil).

The consortium has offered about Rs 2,000 crore, including an upfront payment of Rs 800 crore, for the two companies that together owe Rs 5,500 to banks.

SSG Capital Management, which had bid in the first round as well, has increased its offer from a total of Rs 850 crore to Rs 1,000 crore, out of which it is willing to pay 33% upfront, the person said.

Lenders are going through the bids and will take a call next week, said the person. If the lenders accept the offer given by CarVal, they will have to take a haircut of about 63%.

Some foreign investors have also shown interest in the assets, he said.

The resolution professional for the assets, Rajiv Chakraborty of PwC, didn’t respond to an email seeking comment until press time Friday.

The assets, which are associate companies of Uttam Galva Steels, comprise 1-milliontonne hot-rolled production capacity of Uttam Value Steels at Wardha in Maharashtra for which it purchases pig iron from Uttam Galva Metallics. Once acquired, the plants could be brought to their full utilisation within six months, a person close to the companies said.

The Economic Times reported

FE: Why even Jet Airways shutting down may not save Air India

23 March 2019: Those in government who are constantly looking for revival plans for loss-making PSUs—under various ‘turnaround’ specialists—would do well to look at how Air India has fared after large parts of the airline industry stopped functioning due to IndiGo grounding flights because of lack of pilots and Jet Airways coming close to shutting down.

In February 2018, according to a news report in The Times of India, IndiGo had a market share of 39.9%, followed by Jet at 16.8% and Air India at 13.2%; SpiceJet was fourth with a share of 12.4%. A year later, in February 2019, IndiGo’s market share had climbed to 43.4%, SpiceJet rose from 4th position to 2nd with a 13.7% market share while Air India remained at the 3rd slot, but with a reduced market share of 12.8%; nearly 90% of the fall in Jet’s market share, to 11.4%, was grabbed by IndiGo and SpiceJet.

A similar story, not surprising given the various factors constraining PSUs that no government has been able to fix, applies to telecom PSUs like MTNL and BSNL; despite so many telecom players being forced to shut down, even before the fresh RJio onslaught, both PSUs continued to lose market share.

And this is despite the thousands of crores of taxpayer bailouts these PSUs continue to get in order to protect their bloated/inefficient workforces. Worse, this access to free money has distorted the competitive environment and may even be responsible for the large losses made by private sector firms.

Air India, as Bloomberg Opinon columnist David Fickling has pointed out, is a full-service carrier—like Jet Airways—but its ticket prices resemble those of a budget airline. Over the past few years, data from the Directorate General of Civil Aviation show that Jet’s passenger yields are significantly higher than IndiGo’s—as they should since the latter is a low-cost airline—but Air India’s yields aren’t very different. In 2017, for instance, Jet’s yields were Rs 4.4 per revenue passenger kilometre (RPK) versus Rs 3.7 for IndiGo (18.9% higher) and Rs 3.9 for Air India (just 5.4% higher than IndiGo); in 2014, in fact, while Jet’s yield was Rs 4.9 versus IndiGo’s Rs 4.5, that for Air India was even lower at Rs 4.3. Had Air India not got the Rs 32,809 crore it got since FY10, it would have shut down, and with overall fares rising as a result, other airlines would have done better.

In this context, it is also important that bankers, like SBI, don’t consider the proposal, doing the rounds for a while, to merge Air India and Jet and then sell the combined package to a willing buyer; with Etihad wanting to offload its Jet stake to SBI at a huge discount, and SBI asking Naresh Goyal to exit the airline, the temptation to do this will be large.

Apart from the fact that the history of M&A is chequered globally, central to the idea of the merger is the government absorbing a lot more of Air India’s debt. If more of the debt had to be absorbed, as this newspaper has been arguing, it would have made the Air India sale a lot more attractive, so why link it to a merger with Jet. Indeed, absorbing the rest of the debt, beyond what the government had agreed to at the time of the privatisation process, would have equalled just 3-4 years of Air India’s future losses, so it would have been a win-win.

Ideally, RBI should enforce its rules and ensure Jet goes to the NCLT if a solution is not found within the requisite time frame. If a combined Jet-Air India makes as much sense as is being made out, a potential buyer can get Jet at a discount in NCLT and then make a bid for Air India. Neither the banks, nor the government—via the banks it owns—should try its hand at this complex deal.

The Financial Express reported

FE: NCLT dismisses Liberty plea against rejection of its plan for Infinitas

23 March 2019: Citing the legal position laid down by the Supreme Court recently, the Chennai bench of the National Company Law Tribunal (NCLT) has dismissed an application by UK-based industrial and metals company Liberty House group, challenging the rejection of its resolution plan for Chennai-based beleaguered renewable power infrastructure solution provider, Infinitas Energy Solutions.

The bench of Mohd Sharief Tariq ruled that the resolution professional, the adjudicating authority or appellate authority, were not empowered to reverse the commercial decision of committee of creditors (CoC).

In view of the reasons recorded by the CoC for rejection of the resolution plan by Liberty House and the legal proposition laid down by the apex court, the resolution applicant has no vested right to challenge the rejection of its resolution plan, he said.

The SC had ruled that the NCLT has no authority to evaluate the commercial decision of the CoC to approve or reject a proposed resolution plan in K Sashidhar vs Indian Overseas Bank case. The SC said that there was no provision in the Insolvency and Bankruptcy Code (IBC) that empowers the resolution professional or the adjudicating authorities (NCLT & NCLAT) to reverse the commercial decision of the CoC.

According to Liberty House, which filed the plea against the rejection, the main issue it wanted to get an answer was as to whether the liquidation of the corporate debtor (Infinitas Energy) can be permitted if a resolution plan is rejected for reasons extraneous to the scheme of the IBC.

Liberty House had proposed to infuse money in excess of Rs 100 crore to run Infinitas Energy and thereby increasing the possibility of the contingent payments being realised. However, CoC rejected the proposal and filed for the liquidation of the company, it added.

Infinitas Energy Solutions, formerly known as Trishe Renewable Energy Solutions, was dragged to NCLT by one of its lenders, Indian Bank, alleging a default of over Rs 41-crore loan and subsequently corporate insolvency resolution process was ordered on September 18, 2017. The financially-troubled company also had loan defaults towards a slew of other banks, including Punjab National Bank.

The main contention of the CoC was that creditors would be subject to significant haircut if the resolution plan is accepted and offer materially lower than the one time settlement offer made by the company in 2016. The CoC pointed out that the financial creditors are possessed with better recovery options than that proposed by the resolution applicant.

The NCLT bench observed that the CoC, while rejecting or accepting the resolution plan, is under obligation to strike a balance between the interests of the creditors and corporate debtor.

The element of realisibility under the resolution plan or liquidation is an important aspect which the CoC has to keep in mind at the time of making decisions. The resolution applicant or the promoters cannot thrust their will on the creditors who have already been pushed to odd position with regard to the recovery of their legitimate dues.

The Financial Express reported