HI: Orders in Deccan Chronicle case deferred to April 8

1 April 2019:  The Hyderabad Bench of National Company Law Tribunal (NCLT) will now issue orders on April 8 on the interim application (IA) filed by IDBI Bank challenging lower allocation of funds for it in the resolution plan approved by Committee of Creditors (CoC) of debt-ridden Deccan Chronicle Holdings Limited (DCHL). Orders on approved resolution plan will also be given on the same day. 

These orders were scheduled to be delivered on Monday, but Ratakonda Murali, Member (Judicial), Court-I of NCLT Hyderabad Bench, deferred them to April 8. 

Meanwhile, Canara Bank on Monday submitted written submission on IA 24 and 121 of 2019 filed by IDBI Bank and Resolution Professional. Other 8 IAs related to this case will be also be taken up on April 8. 

IDBI Bank, one of the financial creditors to the debt-ridden media house, knocked at the doors of NCLT, objecting to the way proceeds from the resolution process were being distributed among financial and operational creditors. 

The bank argued that it was unfairly treated while allocating amount offered by resolution applicant Vision India Fund of Kolkata-based Srei Multiple Asset Investment Trust (SMAIT) for DCHL. 

The bank said it was allocated just 3.86 per cent of the total amount offered in the resolution plan while its loan amount constituted 6.71 per cent of the total loans availed by DCHL.

The Hans India reported

PT: NEWSJet Airways misses $109 million loan repayment to HSBC Bank: Report

1 April 2019: Troubled Jet Airways India Ltd. missed a $109 million loan repayment due to HSBC Bank this week, people with knowledge of the matter said.

The money was due on March 28, and was part of a two-tranche facility totaling $140 million that the company took from HSBC in 2014, according to the people, who asked not to be identified because the details are private. Jet had also missed payment on the other $31 million tranche that was due on March 11, and hasn’t repaid any of the loan, the people said.

That adds to a string of missed deadlines at the Indian carrier, which has grounded about two-thirds of its fleet. The company’s credit rating was cut to default in January after it failed to honor obligations to India lenders.

The fate of the debt-laden airline, which has struggled to keep up with a slew of budget carriers, is crucial for India’s government. Its collapse could put about 23,000 jobs at risk and dent Prime Minister Narendra Modi’s image ahead of his re-election bid.

Lenders committed this month to infuse as much as 15 billion rupees ($217 million) in emergency debt funding, conditional on the resignation of Jet Chairman Naresh Goyal. The former ticketing agent who went on to build one of India’s biggest airlines stepped down under pressure this week.

A spokesperson from Jet Airways wasn’t able to immediately comment. HSBC declined to comment.

The company had said in an exchange filing that repayment on an external commercial borrowing that was due on March 28 “has been delayed owing to temporary liquidity constraints and the company has engaged with the lender in relation to the same,” though it didn’t give details. Jet had said on March 11 that it had delayed payment on an external commercial borrowing due that day, without elaborating.

What comes next

Indian lenders who now hold more than 50 percent of Jet Air are seeking to overhaul the company and salvage the carrier that needs an estimated 85 billion rupees to get back on its feet.

As the airline misses more debt repayments, lenders are staring down more pain. Rajnish Kumar, chairman of State Bank of India, which is leading the lenders’ plan, has said he expects to get a new investor in Jet by May 31.

As reported on theprimetime.in

BS: SBI moves SC against NCLAT advice to give more cash to StanChart

1 April 2019: The Essar Steel’s debt resolution battle has reached the Supreme Court (SC) with State Bank of India (SBI) moving the apex court against the National Company Law Appellate Tribunal (NCLAT) advice to give more cash to Standard Chartered (StanChart), which has made a claim of Rs 3,487 crore against the company.

The SBI action came just days before the NCLAT was to hear the outcome of the committee of creditors (CoC) meeting on April 9.  During the NCLAT hearing, SBI had said Standard Chartered was not a secured creditor and should not be allowed to make any additional claim from ArcelorMittal’s Rs 42,000-crore offer. 
Standard Chartered had informed the tribunal that it was only getting 1.7 per cent of its dues or Rs 60 crore, while other lenders are getting 92 per cent, based on ArcelorMittal’s payments plan. But SBI had opposed giving equal treatment to Standard Chartered, saying the bank was not a secured creditor as its loan was not directly to Essar Steel but to a promoter entity.
In July 2, Standard Chartered had asked the resolution professional (RP) of Essar Steel that its claim of Rs 3,487 crore pertaining to its loan to Essar Steel Offshore Limited (ESOL) should be reclassified from unsecured to a secured one on the basis of share pledge made by the promoters. It said the corporate guarantee for the loan was provided by Essar Steel for the ESOL loan.

The RP agreed to Standard Chartered’s claim to be converted into a secured one based on security of pledge of shares.  

But on 31 August, Essar Steel’s lenders, led by SBI, ICICI Bank, IDBI Bank, Edelweiss ARC, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India and Punjab National Bank, objected the re-classification of Standard Chartered loan from unsecured to a secured lender. 
The lenders expressed their objection on Standard Chartered being a financial creditor on grounds of execution of guarantee without obtaining no objection certificate (NOC) from them, based on which, the lenders said the Standard Chartered’s claim is invalid, unsustainable in law, ultra vires and far beyond Essar Steel’s powers and authority. 

In this regard, a reply letter dated September 10, 2018, was sent on behalf of the RP mentioning that the RP would suitably record the objections (as set out in the said letter dated August 31) in the list of creditors of ESIL. 

Interestingly, last week 70 per cent of the lenders agreed to set aside Rs 1,000 crore more for  the  operational creditors of Essar Steel as against Rs 200 crore earmarked earlier, according to ArcelorMittal’s debt resolution plan. This plan, however, excluded Standard Chartered. 

Essar Steel’s operational creditors have made a claim of Rs 4,700 crore against the company. The NCLT’s Ahmedabad Bench had earlier ordered that lenders must share 15 per cent of ArcelorMittal’s upfront cash with operational creditors, while the rest could be distributed to the lenders.

Essar Steel was sent for debt resolution in June 2017 after the company failed to repay its debt worth Rs 54,000 crore to Indian banks.

The Business Standard reported

ET: Lenders ropes in Ernst & Young as Jet auditor

1 April 2019: Lenders to Jet Airways have zeroed in on Ernst & Young as the new auditor of the troubled airlines. The interim management committee, which is being formed, will formally appoint the E&Y, people familiar with the matter said.

E&Y won the race while Deloitte was close contender.

State Bank of India, which is the leader of the lenders’ consortium, had in December asked E&Y to carry out forensic audit of the airlines books for the period between April 2014 and March 2018.

BSR & Co, an affiliate of KPMG India, and DTS & Associates were Jet’s auditor and they signed the third quarter result with a strong note regarding preparation of financial results on going concern basis.

“The company has incurred a loss of Rs 3,208 crore during the nine months ended December 31 2018 and current liabilities exceeds its current assets by Rs 9,610 crore. These events or conditions, among others indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern,” the auditors had said.

SBI and other banks have over Rs 8,000-crore loan exposure to the private airlines.

“Now, the typical audit issues for Jet Airways would be the valuation of long term assets and goodwill , valuation of financial instruments, revenue recognition matters, impairment of intangible & tangible assets among others,” said Arijit Chakraborty, an independent chartered accountant.

Banks are in the process of converting their debt into equity will have 50.1% holding in the airlines as part of its restructuring and prevent it from being grounded. The stake issued to the banks will be valued at Re 1 on their books. Jet has about 11.5 crore equity shares while a similar number of shares will be floated in favour of the lenders. Accordingly, promoter Goyal’s 51% holding will come down to half while Etihad’s 24% will become 12%.

“We wanted take this route as moving to bankruptcy and NCLT court would have taken a long time,” SBI managing director Arijit Basu said.

The airlines is operating 35 aircraft at present while it had a fleet of 119 aircraft before the fund-crisis.

The Economic Times reported

ET: NPA to improve by 180 bps to 8.5% in FY20 on PSB revival: Crisil

1 April 2019: Systemwide bad loans will improve by 180 basis points to 8.5 percent in March 2020 from FY19 levels on slower slippages, and the state-run banks will turn profitable for first time in four years, says a report.

The banking system will close FY19 with gross non- performing assets of 10.3 percent, ratings agency Crisil said Monday in its half-yearly report on credit movements.

The credit ratio, which is the ratio of upgrades to downgrades, moved up to 1.81 times in the second half of FY19 from 1.68 times in the first half. From a quantum of debt perspective, the debt-rated credit ratio moderated to 0.89 times primarily due to two telecom firms slipping.

A slump in advanced economies as well as government spends on infra may lead to a moderation in the credit ratio in FY20, the agency warned.

The report sees NPA ratios improving by 180 bps to 8.5 from 10.3 despite a 14 percent growth in assets expected during the fiscal.

“Moderation in slippages, coupled with recoveries from the bankruptcy resolutions, will play the key role in NPA reduction,” it explained.

Incremental slippages came down to 3.8 percent of total assets in FY19 from over 6 percent levels in the previous two fiscals, it added.

This is slated to help the state-run lenders, who are expected to return to the black after four consecutive years of losses, it said.

Over 60 percent of total upgrades were in investment- linked and export-linked sectors, which got a fillip from domestic infra spends and global growth.

“We expect moderation in the credit ratio as global growth slackens and pace of government’s infra spends slows,” Somasekhar Vemuri, a senior director at Crisil, told reporters over a conference call.

Investment-linked sectors such as construction, engineering, steel, and construction equipment will see only moderate buoyancy, he added.

About the sectors where banks need to be watchful, is residential realty due to inventory pile-ups, telecoms due to unhealthy competition and thermal power units struggling for asset resolutions where one needs to be wary about.

Textile and readymade garments sectors also saw more number of downgrades than upgrades, and a weakness in global economy will continue to put them under pressure, it said.

Investment demand is unlikely to revive in FY20 and the corporate loan requirements will be driven by demand for working capital, the agency said.

Meanwhile, its peer Icra said credit quality pressures persist for the universe of companies it rates with the aggregate volume of the debt downgraded FY19 at Rs 3.2 lakh crore, which is 10 percent higher.

“Downgrades were driven mostly by company-specific concerns emanating from deterioration in business profiles or worsening of capital structures or increased liquidity pressures on the rated entities,” its credit policy head Jitin Makkar said.

Interestingly, Crisil said the number of non- cooperative companies more than doubled to over 6,400 in FY19 from 3,000 in the previous fiscal year.

The Economic Times reported

ET: NCLT orders insolvency proceedings for IDEB projects

1 April 2019:  The National Company Law Tribunal (NCLT) has ordered corporate insolvency resolution process for IDEB Projects, an engineering and construction firm that worked as a sub-contractor to metro rail projects in Bengaluru and Delhi, for defaulting on loans.

Based on a petition filed by Oriental Bank of Commerce (OBC) under the Insolvency and Bankruptcy Code, the Tribunal on Friday appointed Valayudham Jayavel as the interim resolution professional to carry out the proceedings.

Bengaluru-headquartered IDEB Projects is into offering engineering construction services in the areas of road projects, bridges, buildings, steel plants and treatment plants, apart from building metro rail projects.

A consortium of lenders had lent Rs 380 crore to IDEB Projects as working capital. OBC told the tribunal that the company failed to pay it Rs 36.2 crore.

The consortium includes State Bank of India and its associate banks State Bank of Hyderabad, State Bank of Patiala, State Bank of Travancore that have now merged with SBI, apart from OBC and private sector ICICI Bank. The company had availed of a working capital credit of Rs 38 crore from OBC in July 2007.

OBC told the tribunal that IDEB Projects had utilised the entire loan amount and did not pay the dues despite repeated reminders and legal notices. The Debt Recovery Tribunal had ordered IDEB Projects to pay Rs 36.18 crore and issued a demand notice in April 2016.

In its response on February 2, the company questioned the maintainability of the petition, arguing before the tribunal’s Bengaluru bench that only the lead banker, SBI, could take action against it as an irrevocable letter of authority was executed by OBC in favour of the lead banker. Stating that there was a dispute between the debtor and lenders before the DRT, it said the claim of financial creditors was also time-barred.

Further, IDEB Projects argued that it had paid Rs 298.86 crore to the consortium and entered into an agreement in October 2017 where the banks had agreed not to initiate any further recovery proceedings.

Filing an implead petition before the tribunal, lead lender SBI said the compromise agreement stated that in case the debtor failed to pay any or all the financial creditors any of the instalments, then the financial creditors would have the right to initiate recovery proceedings against the debtor for the release of the entire certificate amount along with interest.

Setting aside the objections of IDEB Projects, the tribunal viewed the Insolvency and Bankruptcy Code permitted the financial creditor to file an application for insolvency resolution proceedings either on its own on jointly with other financial creditors in the consortium if a corporate debtor defaulted.

On the dispute over the outstanding amount, the tribunal said the amount claimed by the creditor in the petition “can provisionally found to be correct subject to further verification” by the resolution professional based on the records to be produced by the bank and the company.

On the part amounts that IDEB Projects claimed to have paid to the lenders, the bench consisting of judicial member Rajeswara Rao Vittanala and technical member Ashok Kumar Mishra observed that it “would not absolve the corporate debtor from its responsibility to pay the outstanding amount in full”.

The Economic Times reported

ET: JBF Petro dragged to NCLT as KKR deal falls through

1 April 2019: Banks have decided to drag the debt-laden JBF Petrochemicals to the bankruptcy court after a deal by private equity fund KohlbergKravis Roberts & Co (KKR) to take majority stake in the company stalled, three people familiar with the plan said.

KKR was supposed to infuse more funds and take a controlling stake in JBF’s Mangalore-based subsidiary JBF Petrochemicals under a deal reported in July last year. However that was dependent on JBF promoters restructuring their Singapore-based subsidiary JBF Global Pte and paying back Rs 450 crore of intra corporate deposits. Both these conditions have note been met, stalling the KKR infusion.

“We have been waiting for the KKR funds to come. Looks like that is not going to happen, so recovery process has been initiated. We have filed a case in NCLT but it is yet to be admitted,” said one of the persons cited above.

Founded as a yarn texturing firm in 1982, JBF makes polyester value chain products used in consumer goods, textile and packaging industries.

In August, JBF Industries said KKR will buy 100% of JBF Petrochemicals Ltd. In 2015, the New York-headquartered PE firm invested $150 million for a 20% equity in JBF Industries and to buy zero-coupon compulsorily convertible preference shares.

This infusion was a lifeline to the company, which has a total consolidated debt of Rs11,000 crore, including $400 million (around Rs 2,500 crore) of ECBs from public sector banks led by IDBI Bank, Indian Overseas Bank, Bank of Baroda and Union Bank of India and also Exim Bank.

There are 14 other lenders the company is indebted to and its exposure to Indian banks exceed Rs 6,000 crore.

KKR still retains the option to take control of the petrochemical entity, said one of three persons cited above. 

“KKR has kept its options open. The offer to put more money still stands but certain criteria needs to be met first,” said this person.

KKR declined to comment.

The Economic Times reported

ET: 20 days more for resolution of Uttam Galva

1 April 2019: The bankruptcy court on Monday allowed an extension of 20 days for the resolution of the twin stressed assets of Uttam Value Steels and Uttam Galva Metallics. 

The 270-day resolution deadline for the companies is to expire this Wednesday, with lenders still to take a final call on the two bids that have come in. The assets have received bids from a consortium led by CarVal and another led by SSG Capital Management. CarVal has bid along with Asset Reconstruction of India and offered to pay around Rs 1,900 crore, including an upfront payment of Rs 800 crore for both assets that together owe Rs 5,500 crore for lenders.

The SSG Capital consortium sweetened its earlier bid to Rs 1,000 crore, of which it is willing to make an upfront payment of 33%. The lenders are still to take a final call on the bids. The National Company Law Tribunal has said that that the decision regarding making a consolidated bid for both companies can be taken by the committee of creditors. Both the consortiums have made bids for both companies as they have integrated functions. 

The assets, which are associate companies of Uttam Galva Steels, comprise 1-million tonne 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

CNBCTV18: SBI proposes Jet Airways revival plan, seeks exit of Naresh Goyal, Etihad Airways, says report

1 April 2019: In a bid to revive cash-strapped Jet Airways, public sector lender State Bank of India (SBI) has proposed a new plan which involves a fund infusion of Rs 9,535 crore, and exit of founder Naresh Goyal and Etihad Airways, Mint reported.

The bank is planning an equity infusion of Rs 3,800 crore by two investors, that remain unidentified, and Rs 850 crore equity infusion by public sector banks led by SBI, Rs 485 crore on behalf of public shareholders and additional debt of Rs 2,400 crore and non-fund based facilities of Rs 2,000 crore, the report said quoting sources.

The plan, according to the report said, also pushes for a complete exit of Etihad, large haircuts for banks which include a write-off of debt by the domestic lenders to the ailing airline.

The new plan pushes for both Goyal and Etihad to transfer their shares, 51 percent and 24 percent stakes, respectively, in the airline to an independent trust managed by trustees, who will be appointed by the lenders.

The trustees will reportedly have a call option on the shares owned by the trust at Rs 150 apiece. The resolution plan is subject to approval by various stakeholders, the daily said.

The CNBCtv18 reported

ET: Essar Steel’s operational creditors to get Rs 1,000 crore more

1 April 2019: Majority of lenders to Essar Steel have voted in favour of giving Rs 1,000 crore more to operational creditors as part of the settlement offered by ArcelorMittal, but rejected Standard Chartered’s claims for a higher amount, which may further delay resolution in the 21 month-old insolvency case. Creditors now expect the UK-based lender to challenge the decision of the committee of creditors (CoC) in the Supreme Court. 

“Some banks and foreign funds did not want to give more because it will set a wrong example after a resolution has been approved, but the majority wants things to move ahead,” an executive at one of the creditors told ET. 

In the CoC vote on Saturday, some creditors like ICICI Bank and distressed funds from abroad opposed the decision to give more to operational creditors, saying it would create a wrong precedence and could lead to more demands from them. 

Lenders had to put the proposal to vote after the National Company Law Appellate Tribunal (NCLAT) suggested they consider giving more to operational creditors and Standard Chartered. 

NCLAT will hear the matter on April 8 and bankers expect that the matter is headed for the Supreme Court whatever the appellate court decides. 

“StanChart will surely oppose this,” said the person cited above. “Then, there is also the chance that operational creditors would want more than what is offered now and will appeal. Whatever it is, only the Supreme Court will decide.” 

So far, operational creditors were slated to recover less than 5% or Rs 214 crore out of their Rs 4,976 crore outstanding. That amount will now increase to around Rs 1,214 crore. As a result, the lenders’ recovery will drop by Rs 1,000 crore.

According to the proposal submitted by AreclorMittal, financial creditors led by SBI were to get 92% of their dues, which comes to around Rs 41,987 crore of the total Rs 49,395 crore. 

Essar-Steel-Infographic
Lenders were hoping they can close this case and write back provisions for the fiscal ended March 2019, but delays and counter claims have pushed resolution to the next fiscal. “One school of thought among financial creditors was to not give anything more to anyone because even compromising does not guarantee a resolution,” said the person quoted earlier. “That is also a reason why some opposed the decision to give more.” 

Unlike Indian banks, Standard Chartered had not loaned funds to the parent company but to its subsidiary; hence, it did not have the first charge of its assets. It had voted against the CoC resolution, saying that it was discriminatory. 

The Ahmedabad bench of the NCLT had asked CoC to consider revising its distribution to pay all financial creditors on a pro-rata basis, which would give Standard Chartered a larger share than 1.7% or Rs 60 crore of its Rs 3,500-crore dues, which is what it would get under the current plan.

The Economic Times reported