BS: SC order will help re-ignite power sector: IPPAI

2 April 2019: Power companies will immensely benefit from the Supreme Court’s Tuesday order striking down the RBI’s February 12 circular which stated a time-bound resolution of bank loans, the Independent Power Producers Association of India (IPPAI) said.

“Definitely it is going to help the power companies as it will release the pressure of projects being referred to the NCLT (National Company Law Tribunal) for no fault of theirs. Hopefully the government and the policy makers will look up to the power sector again to find solution along with today’s relief.

“Without fuel supply agreement, a time-bound solution (like the February 12 circular) had no meaning. Now companies can plan for going forward on reviving the stuck projects with fuel and power supply agreements,” IPPAI Director General Harry Dhaul told IANS.

The Supreme Court on Tuesday struck down Reserve Bank of India’s (RBI) February 12 circular related to the resolution of the stressed assets, calling it “unconstitutional” and “ultra vires”.

Power companies such as Essar Power, GMR Energy, KSK Energy, and Rattan India Power, as well as the Association of Power Producers (APP) and the IPPAI had, in August 2018, moved the apex court, challenging the constitutional validity of the circular.

Daizy Chawla, Senior Partner, Singh & Associates, said though the judgment, by which the Supreme Court has set aside the impugned circular dated February 12, 2018 on the ground that Section 35AA of Banking Regulation Act under which it is issued is ultra vires, will be a big relief for those companies which were directly hit by the said circular.

“However, this does not mean that action against the said entities cannot be taken under the IBC (Insolvency and Bankruptcy Code). Moreover, the Hon’ble Apex Court has also not gone into the other issues or decided with respect to other issues which the power companies were emphasizing as the reasons for their stress,” she said.

Rating agency Moody’s, however, termed the Supreme Court order as being credit negative for Indian banks.

“Voiding of the February 12 circular is credit negative for Indian banks. The circular had significantly tightened stressed loan recognition and resolution for large borrowers. But, with the voiding, this may now have to be watered down.

“The resolution of stressed loans impacted by the circular will be further delayed as the process may have to be started afresh,” said Srikanth Vadlamani, Vice President, Financial Institutions Group, Moody’s Investors Service.

Private power producers had pleaded in the Supreme Court that the RBI circular would further accentuate the already existing grave problems afflicting the health of the sector while challenging the validity of the central bank’s order.

Several power companies, as well as the APP and the IPPAI, had challenged the validity of the RBI circular in various high courts seeking a stay on insolvency proceedings, arguing that the circular would push even those power assets that were close to achieving loan restructuring into insolvency.

In its arguments while challenging the circular, the APP said: “Ministry of Power’s admission that non-payment of dues (Rs 40,846 crore) and delay in recovery of amounts from discoms, majority of which are Government-owned impairs the ability of IPPs to service debt in timely manner.

“The HLEC (High Level Empowered Committee of the Power Ministry) Report also notes that delay in payments by discoms is a major stress factor.”

The Business Standard reported

BS: Wait for debt resolution could get longer for power assets

2 April 2019:The Rs 2-trillion worth of non-performing assets (NPAs) in the power sector have escaped the noose of insolvency, but the route to resolution remains long drawn.

Close to 34 thermal power generating assets totalling 40,000 megawatt (Mw) will now have to find a buyer or undergo debt resolution without the Reserve Bank of India (RBI) prescribed deadline.
The Supreme Court (SC) on Tuesday quashed the February 12, 2018, circular, thereby denying all resolution process arising after it. In the circular issued under the Insolvency and Bankruptcy Code (IBC), the RBI had allowed 180 days to the lenders for debt resolution of large defaulters, failing which the asset would have to be taken to the National Company Law Tribunal (NCLT) for initiation of insolvency against them. The deadline expired on August 31, 2018. Most companies took the legal route to avoid the NCLT.
Power companies such as Essar Power, GMR Energy, KSK Energy, and RattanIndia Power as well as the Association of Power Producers (APP) and Independent Power Producers Association of India had in August moved the SC, challenging the constitutional validity of the IBC and the February 12 circular of the RBI.
“With the threat of IBC proceedings mitigated, power companies and lenders will have some breathing space as well as flexibility to restructure debts in a manner which ensures continuity and value maximisation for lenders as well as power companies,” A K Khurana, director-general, APP, said.
The apex court has, however, upheld the constitutionality of the IBC governed under Sections 35AA & AB of the Banking Regulation Act that gives powers to the Union government to recommend to the RBI insolvency proceedings of certain companies. So while the deadline of resolution is not there anymore, the lenders could still initiate a resolution process or drag any to the NCLT.
“This provides some relief for promoters and their lenders, who can now hope that the asset utilisation would improve in the coming quarters, with electricity demand going up and coal supply improving,” said Debasish Mishra, leader, energy, resources and industrial products, at Deloitte in India.
Resolution outside the IBC could, however, worsen the debt resolution of various assets. Of the 34 stressed thermal power assets identified by the finance ministry, only one has found a buyer to date. Jaiprakash Associates’ operational power project (1,980 Mw) at Bara was bought by Resurgent Power — a joint venture promoted by Tata Power and ICICI Bank.
More than 24 stressed power projects will now find it hard to find buyers because they are “incomplete”. Most of the incomplete projects are due to cancellation of coal block allocation, delay in getting land and/or environmental clearances, and local unresolved issues.
There were seven projects which were subsequently declared resolved after they received subsidised coal supply under the SHAKTI scheme of the Centre.
Besides coal, there are 14,000 Mw of gas-based power projects which don’t have any gas supply. These would face a hard time as there was no likelihood of any assured supply either. The Centre discontinued the scheme to offer subsidised gas last year. The other 14,000 Mw projects have enough to run at barely 30 per cent plant load factor or operating ratio.
Leading banks, sector lenders such as State Bank of India, Power Finance Corporation, and REC designed several plans last year — Samadhan, Parivartan, Sashakt. The government officials later claimed these were ‘resolution frameworks’ and did not amount to a bailout scheme.
A high level empowered committee (HLEC) was formed under the chairmanship of the Cabinet secretary to provide long-term solution for stressed assets in the power sector. It came out with its report in November 2018. The report had a slew of recommendations to improve payment to power companies, boost coal supply, and provide power sale contracts to private units.
The power industry in its submission to the SC said that extrinsic factors such as lack of coal supply, power purchase agreements from states, and delayed payments had worsened their debt situation.
The submission quoted the parliamentary committee report, which said NPAs in the power sector was “primarily on account of government policy changes, failure to fulfil commitments by the government, delayed regulatory response, and non-payment of dues by distribution companies.” Market experts said similar issues would continue to haunt the sector.
The power industry, however, in its SC submission condemned the HLEC report saying the committee in its deliberations has not provided a remedy for the root cause of stress in the power sector.
It also said there has been delay in implementing the HLEC by several departments. “While the CCEA and the Ministry of Power have issued notifications, concerned ministries like coal and railways will also have to issue necessary notifications in order to give effect to the recommendations. Further, no timelines for operationalising the said recommendations have been fixed to date,” said the power industry in the SC.

The Business Standard reported

Qrius: Here’s how majority lender SBI’s bailout plan will clear Jet debt

2 April 2019: The State Bank of India (SBI), the majority lender in Jet Airways, has proposed a new bailout plan to rescue the airline from debt and insolvency. It has created a payment structure that will give Jet Rs 9,535 crore. The Indian airline was close to insolvency after it defaulted on loan payments and staff salaries.

Jet’s co-founders, Naresh and Anita Goyal, stepped down from their positions on the board earlier last week.

CEO of Etihad Airways Tony Douglas also previously met with SBI to chalk out Etihad’s exit from Jet. After a few rough years, Etihad has also been forced to restructure its finances and ensure that it does not engage in risky deals until the company’s books stabilise.

Two of Etihad’s previous investments, namely Air Berlin and Alitalia, have filed for bankruptcy after being unable to face stiff competition from cheaper airlines.

Etihad itself is vying for customers with Emirates Airlines and Qatar Airways and trying to avoid anymore losses.

Details on SBI’s bailout

SBI’s bailout plan will ensure Jet gets an equity infusion of Rs 3,800 crore from two unnamed investors, Rs 850 crore from public sector banks, and Rs 484 crore from public shareholders. This brings Jet’s cash infusion up to Rs 5,134 crore.

The two unidentified investors will give Jet Rs 1,700 crore and Rs 2,000 crore. Under this deal, Jet will also get debt write-offs.

Domestic lenders will also write off debt worth Rs 2,600, and Mashreq Bank in Dubai and HSBC in the UK will shave off Rs 1,700 crore from the airline’s debt, as well. 

Etihad Airways, another significant shareholder in the company, will exit as well.

Naresh Goyal and Etihad will transfer their 51% and 24% stakes in the airline to an independent trust whose managers will be appointed by SBI and other lenders, reported Livemint.

The lenders will now get majority stake in the company of 50.1%; also, the independent committee comprised of Goyal and Etihad’s equity will control 37.4%. Public shareholders will get the rest.

Although Goyal has stepped down, CEO Vinay Dube and CFO Amit Agarwal will continue on in their roles. SBI Chairman A K Purwar will now replace Goyal as chairman of Jet board.

Jet’s shareholders are yet to approve this new resolution plan, but lenders are expecting a jump in the airline’s stock price that will add another Rs 2,636 crore to the airline by 2022.

Jet’s financial troubles come to a close

Like Air India and Kingfisher, Jet has also had its fair share of financial turbulence, regardless of being the largest airline for the last 25 years.

Critics of the deal have said the government is using a “back door” to bail out a private company without due diligence or independent financial valuations.

“Private players will walk away happily, while the government of India and PSU banks will be now running a bankrupt private airline,” said Randeep Surjewala, Congress spokesperson.

The Modi administration has also received pushback for infusing Air India with enough cash for basic survival. Experts say this “drip feeding” disrupts the natural price competition in the aviation industry because other airlines cannot charger higher ticket prices if Air India keeps surviving and offering cheap tickets.

SBI Managing Director Arijit Basu said board of directors, not lenders, will run Jet. However, the fact that public lenders helped Jet escape insolvency and spared the aviation industry more instability may be framed as a personal win for ‘Modinomics’. 

Supporters of the deal say SBI has been fighting to ensure Jet is rescued from debt because, as it is the country’s largest airline, hundreds of pilots and staff risked losing their jobs. Business Today reports that close to 16,000 people were facing unemployment if Jet did not recover.

If Jet did not find its wings soon, the Indian aviation industry was headed for financial turmoil. Regardless, Jet’s new resolution plan is good news for the common Indian, who was previously caught in the crossfire between Goyal, Etihad, and the lenders. 

As reported on qrius.com

BQ: RBI Can’t Issue Umbrella Directions To Banks To Initiate Insolvency, Says Supreme Court

2 April 2019: The Supreme Court struck down the Reserve Bank of India’s Feb. 12 circular on the grounds that the regulator can give directions to banks on stressed assets only upon the central government’s authorisation and in case of a specific default. The direction has to be only for specific cases of default by specific debtors and not issuance of directions to banking companies generally, the apex court said in its order.

The judgment interprets provisions—sections 35AA and 35AB—under the Banking Regulation Act and section 45L of the RBI Act, which were relied upon by the regulator to issue the Feb. 12 circular. The circular had attempted to lay down a rule-based stressed asset framework which asked banks to resolve stress in large accounts within 180 days or refer them for insolvency proceedings.

First several companies in the power sector and then companies from the sugar, fertiliser and infrastructure sectors objected to the circular’s “one size fits all” approach. They petitioned the Allahabad High Court and subsequently the Supreme Court arguing that their financial stress was on account of government policies and other reasons not connected to the management of these companies. Their case was that the specific powers granted to the RBI, to direct banks to file insolvency proceedings against defaulters, were being wielded in a general fashion.

The Contentious Provisions

Sections 35AA and 35AB were introduced by an amendment to the Banking Regulation Act in May 2017.

Section 35AA – The Central Government may, by order, authorise the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016.

Pointing to the language of section 35AA, the apex court pointed out that the RBI can issue directions to banks to initiate insolvency against a company only if there’s a central government order authorizing it to do and only in respect of a specific default.

It is clear that the RBI can only direct banking institutions to move under the Insolvency Code if two conditions precedent are specified, namely, (i) that there is a Central Government authorisation to do so; and (ii) that it should be in respect of specific defaults. The Section, therefore, by necessary implication, prohibits this power from being exercised in any manner other than the manner set out in Section 35AA.

Supreme Court Order

The first thing to be noted is that without such authorisation, the RBI would have no such power, the judgment authored by Justice Rohinton Nariman says.

On section 35AB—also relied upon by the RBI to issue the Feb 12 circular—the court noted that it does not grant power to the central bank to direct banks to initiate insolvency proceedings.

Section 35AB – (1) Without prejudice to the provisions of section 35A, the Reserve Bank may, from time to time, issue directions to any banking company or banking companies for resolution of stressed assets

The order noted that section 35AB gives the RBI powers to issue directions to banks to resolve stressed assets without initiating the insolvency process. And so, it explained, when it comes to issuing directions to initiate the insolvency resolution process under the Insolvency Code, section 35AA is the only source of power.

Having dealt with implications of Feb.12 circular for banks, the court then delved into the impact on non-bank financial services companies, which were also impacted by the regulator’s directions. This because the regulator had also relied upon section 45L of the RBI Act to pass the circular. This section gives the regulator power to issue directions to financial institutions.

In issuing any directions under this section, the provision mandates the RBI to have due regard to the conditions in which, and the objects for which, the institution has been established, its statutory responsibilities, and the effect the business of such financial institution is likely to have on trends in the money and capital markets.

The lack of this “due regard” by the regulator in its Feb. 12 circular was another reason for the apex court to have held it ultra vires.

The court noted that RBI circular doesn’t mention that due regard has been given to the issues prescribed under section 45(L)(3). It pointed out that circular applies to NBFCs since they are usually part of the lenders’ forum which jointly lend money to debtors. And since they are inseparable from banks, the 12 circular cannot be applied to them alone.

Such non-banking financial institutions are, therefore, inseparable from banking institutions insofar as the application of the impugned circular is concerned. It is very difficult to segregate the non-banking financial institutions from banks so as to make the circular applicable to them even if it is ultra vires insofar as banks are concerned  

Supreme Court Order

And so, the apex court declared the circular ultra vires as a whole. Consequently, all actions taken under it, including actions by which the Insolvency Code has been triggered must fall along with it, the order concluded.

The Bloomberg Quint reported

LM: Sebi issues circular on appointment of administrators

2 April 2019: Sebi on Tuesday issued a circular regarding empanelment of insolvency professionals to be appointed as administrators under the regulator’s framework.

An administrator has to be a person registered as an insolvency professional with the Insolvency and Bankruptcy Board of India (IBBI) and empanelled with the board from time to time.

The IBBI has been set up under the Insolvency and Bankruptcy Code.

Sebi has issued a circular on empanelment of insolvency professionals to be appointed as administrator, remuneration and other incidental and connected matters under its norms.

During the pendency of the insolvency assignment, the appointed administrator shall neither withdraw consent nor surrender registration to the IBBI Board or membership to the Insolvency Professional Agency (IPA), according to the circular.

In case of such withdrawal or refusal, the matter would be referred to the IBBI for suitable action.

The administrator can also appoint an independent chartered accountant to verify the details of money raised, including payment already made to investors. Sebi appoints administrators in case of entities where investors’ money has to be refunded.

The remuneration payable to administrator shall be in accordance with IBBI’s Liquidation Process norms, the circular said.

Besides, there would be different fee slabs for regular and forensic audits carried out during the insolvency process by chartered accountants.

Similarly, the regulator also specified percentage as fees for registered valuer and registrar and share transfer agent on the amount valued.

The LiveMint reported

BS: ‘NCLT cases likely to be relooked after SC order’

2 April 2019: The Supreme Court decision declaring RBI’s February 12 circular ultra vires may push for a relook to some of the cases referred to the National Company Law Tribunal (NCLT), said a report on Tuesday.

The circular mandates lenders to initiate resolution or restructuring of loans of Rs 2,000 crore and above within six months from the date of default. Also, if resolution fails within stipulated time-frame, the matter has to be referred to the NCLT for resolution under Insolvency and Bankruptsy Code.

“Since the circular has been suppressed, it is likely that some cases referred to NCLT may be looked at afresh. For the corporate-heavy PSU and private banks, this seems to be a near-term positive because of the possibility of delaying incremental stressed asset recognition,” the Centrum report said.

Post the RBI circular, banks have referred close to eight power projects to NCLT. Most of these cases are yet to be admitted under IBC.

Adding that the major beneficiaries of the Supreme Court’s action are likely to be the stressed power and sugar companies, some of whose promoters are fighting to maintain their ownership in their companies.

The report, however, also said that the SC judgement seems to be negative for longer-term and structurally for these corporate-heavy banks from a credit discipline standpoint and from the RBI’s perspective as it undermines the RBI’s action.

The circular had created huge pushback from both stressed corporates and banks who were strongly opposed to it. Various companies – especially in the power, sugar and fertiliser sectors – had challenged the RBI’s directive as unconstitutional on the ground that it wrongly classified them as willful defaulters, noted the report.

“Their argument was that they were stressed because of external reasons beyond their control. Several defaulters argued that some genuine cases where customer payment was overdue were because of slow processing by government departments.”

On many occasions, they had asked the RBI to roll back or dilute some of the most stringent clauses. The RBI refused, insisting that the new rules will improve the credit culture as it would force banks to deal with NPAs more proactively, leading to a reduction in NPA addition going forward.

The 12 Feb circular had directed lenders to refer loan accounts over Rs 20bn under the Insolvency and Bankruptcy Code (IBC) if they were not resolved within 180 days of default.

The circular imposed a one-day default rule. Banks had to treat a company as a defaulter even if it missed the repayment schedule by a day.

This would not impact the NPA recognition rule. The impact of this circular was to identify stressed assets in the banking system immediately rather than wait for an account to turn NPA over 90 days past default. As soon as there was a default in the borrowers account with any bank, all banks singly or jointly had to initiate steps to cure the default.

The RBI circular had made it mandatory for banks to ensure that a resolution plan was in place within 180 days of default of accounts with exposure of Rs 20bn or more.

The resolution plan could involve regularisation of the account by payment of all overdue by the borrower entity, the sale of the exposures to other investors, changes in ownership and restructuring.

Failing implementation of such a resolution plan, such accounts were to be directed to the National Company Law Tribunal (NCLT) for insolvency proceedings within 15 days.

The Business Standard reported

ET: SC orders Emaar MGF Land to refund homebuyer’s money within four weeks

2 April 2019: The Supreme Court (SC) on March 29 ordered Emaar MGF Land to refund a home buyer’s money within a period of four weeks from March 29 with 10.7% interest.

The bench of Judge Rohinton Fali Narman and Vineet Saran said that the matter is being disposed of today as it is clear that the appellant is an allottee in the real estate project of Emaar MGF Land. As an allottee, it has either a right to get possession of the flat or to claim refund. It has been argued before us that the appellant has been offered possession but has declined.

In this event, it is clear that the appellant is entitled to refund of monies that it has paid. This refund will be made by Emaar, the bench said.

SC also made it clear that this order is not to be treated as a precedent.

On January 24, 2019, NCLT-Delhi initiated corporate insolvency resolution process (CIRP) against Emaar MGF Land. However, on February 1, 2019 Hadi Mohd Taher Badri, director of Emaar MGF Land, moved National Company Law Appellate Tribunal (NCLAT) informing them that they have settled the case with the home buyer which filed the insolvency case.

Badri further appealed that since the insolvency resolution professional has not yet formed the committee of creditors and has not issued any public announcement, it should also be disposed off.

Home buyers, however, pleaded that the company should settle the case with all the buyers and not just one.

NCLAT on hearing both the petitions allowed Emaar MGF Land one chance to settle the case with the buyers. It also ordered the IRP to not issue any public announcement or constitute the committee of creditors until further order.

“Emaar however misinterpreted the order and sent emails to home buyers to take possession after clearing their exorbitant demands,” said advocate Aditya Parolia and advocate Piyush Singh, who represented home buyers.

Hence they filed an appeal before the apex court which now stands disposed off.

Meanwhile, NCLAT had allowed home buyers to file interlocutory application through their representatives while adjourned the matter saying that let the Supreme Court first decide the issue. 

Now, NCLAT will hear the case on April 4, 2019.

The Economic Times reported

LM: CPPIB may invest in Piramal’s renewables, roads platforms

2 April 2018: The Ajay Piramal-led Piramal Group, which has set up platforms to acquire operating renewable energy and roads assets, has roped in Canada’s largest pension fund manager Canada Pension Plan Investment Board (CPPIB) as an anchor investor, said two people aware of the development.

In July 2018, Piramal Group chairman Ajay Piramal had said in an interview that the group aims to set up an aggregation-cum-investment platform for renewable energy and road assets.

The proposed platforms for roads and renewable energy assets will see a total commitment of close to $2 billion, according to one of the persons mentioned above.

“They (Piramal) have tied up commitments from CPPIB and another large European institutional investor. They will also bring on board two or three more investors,” he said, seeking anonymity as he is not authorized to speak with the media.

Piramal plans to deploy around $1 billion in acquiring solar and wind assets under the renewable platform, while it would invest $800 million to $1 billion under the roads platform, said the second person mentioned above, also requesting anonymity.

Piramal has already started scouting for assets that can be acquired under the two platforms, he added.

Both Piramal Group and CPPIB said they cannot comment on Mint’s queries as they do not respond to “market rumours and speculation”.

The infrastructure-focused platforms add to the existing tie-ups that Piramal has ventured into to tap opportunities in areas such as real estate and stressed assets.

In February 2017, Piramal Enterprises had entered into a strategic partnership with Ivanhoé Cambridge, a real estate subsidiary of Caisse de dépôt et placement du Québec (CDPQ), Canada’s second-largest pension fund, to provide long-term equity capital to top residential developers across five Indian cities.

In 2016, it had also set up a distressed asset investment platform, along with private equity firm Bain Capital Credit, to invest in stressed assets.

The two entities will jointly invest about $1 billion in restructuring opportunities across India, along with the World Bank’s International Finance Corporation, which has also agreed to commit capital towards the fund.

In 2014, Piramal tied up with Dutch pension fund APG Asset Managementto invest $1 billion in Indian infrastructure companies through structured debt.

For CPPIB, this marks yet another investment commitment towards infrastructure in India. Last year, the Canadian pension fund manager invested $391 million in India’s largest renewable energy producer ReNew Power Ltd, across two tranches.

The Canadian investor has also invested in the roads sector in India. In May 2018, CPPIB and Allianz Capital Partners, part of insurance giant Allianz, invested in the first private infrastructure investment trust in India—IndInfravit Trust, sponsored by L&T Infrastructure Development Projects Ltd. CPPIB invested approximately Canadian $200 million for 30% of IndInfravit units.

Other major sovereign and pension investors in the Indian infrastructure space include sovereign wealth funds GIC Holdings Pte Ltd, Abu Dhabi Investment Authority (ADIA) and CDPQ.

Last year, GIC and ADIA invested $450 million in Greenko Energy Holdings in one of the largest funding rounds by an Indian clean energy producer. ADIA is also an investor in ReNew Power.

The LiveMint reported

BS: SC judgment on petition against RBI’s February 12 circular today

2 April 2019: The Supreme Court of India will on Tuesday pronounce its judgement in the companies’ challenge to the Reserve Bank of India’s February 12 circular.

A two-judge Bench of Justice Rohinton Fali Nariman and Justice Vineet Saran had heard the companies’ who had moved the apex court against the circular.
The banking sector regulator in this circular had allowed 180 days for debt resolution, failing which the asset would have to be taken to National Company Law Tribunal (NCLT) for initiation of insolvency against them. The deadline got over on August 31, 2018.
 The cases challenging the circular were filed in several High Courts by Essar Power, RKM Power, IL&FS, GMR Energy, Rattan India and KSK Mahanadi. Besides power, shipping and sugar companies have also sought relief from the RBI notification.
Hearing petitions filed by power industry associations – APP and IPPAI on behalf of all 34 stressed power assets, the Allahabad High Court had on August 27 denied any relief. Following the high court order, the companies had moved the top court which transferred all the cases to itself. The apex court had then stayed insolvency proceedings against these companies until further orders.  
There were some companies which had challenged the validity of the Insolvency and Bankruptcy Code itself, while others had questioned the constitutional validity of the RBI’s February 12 circular. Power companies, however, had sought temporary relief from the circular only for themselves.
In their submissions, the power companies had alleged that RBI’s was based on a ‘one-size-fits-all’ approach without taking into consideration factors such as the reasons for non-payment, power companies.
Citing that in their case, the supply side as well as the demand side was under the watchful eyes of regulators, the power companies had 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 had told the court.
The RBI on the other hand, while defending its circular, had told the top court that stressed accounts which were affected had not yet come up with a resolution plan, despite ample time having been given to them. The banking sector regulator had then also suggested that if the companies were ready with a plan, a time of 15-30 days could be given to them.

LM: SBI charts a new course for Jet without Naresh Goyal, Etihad

1 April 2019: State Bank of India (SBI), the biggest lender to Jet Airways (India) Ltd, has proposed a new plan to revive the ailing carrier that involves a total fund infusion of  9,535 crore, and the exit of founder Naresh Goyal and Etihad Airways PJSC.

The plan includes an equity infusion of  3,800 crore by two unidentified investors and a  850 crore equity infusion by state-run lenders led by SBI,  485 crore on behalf of public shareholders that will be achieved through banks underwriting a rights issue, additional debt of  2,400 crore and non-fund based facilities of 2,000 crore, according to the plan reviewed by Mint.

The resolution plan also proposes a complete exit of Abu Dhabi-based Etihad Airways, as well as large haircuts for lenders, including a write-off of debt by the domestic lenders to Jet Airways.

Last month, the lenders committed a fund infusion of 1,500 crore, which was conditional on the resignation of Goyal from the board. A shutdown of Jet Airways and consequent job losses would have been a setback for the Narendra Modi administration, ahead of national polls.

According to the new plan, both Goyal and Etihad will transfer all their shares, 51% and 24% stakes, respectively, in the airline to an independent trust managed by trustees, who will be appointed by the lenders. The trustees will have a call option on the shares owned by the trust at  150 apiece. The resolution plan is subject to approval by various stakeholders.

A call option is a pact between two parties wherein the buyer earns a right to exercise the option to purchase a particular asset from the call option seller within a set period of time. Once the buyer exercises the option, the seller has to sell the asset at the originally agreed price.

After the shares of Jet are placed in a trust, an issuance of new capital in the form of an equity infusion of 5,135 crore through a rights issue at  150 per share will take place, which will see participation from two unidentified investors that will invest  1,700 crore and 2,100 crore, respectively, according to the details of the plan.

Following this, the domestic lenders will write off debt worth  2,600 crore, while foreign lenders led by Dubai-based Mashreq Bank and HSBC will take a total haircut of  1,170 crore. The resolution plan believes that Jet’s lenders will still make a gain of  2,636 crore on the assumption that Jet’s share price will rise to  300 by March 2022. There will not be any write-down by any of the airline’s lessors and creditors. The resolution plan estimates an overall need of  10,645 crore to sustain Jet’s operations, including  4,094 crore overdue to creditors, an estimated loss of  2,700 crore, settlement of unsecured dues worth  1,170 crore to HSBC, Mashreq, etc., cash balance requirement of  1,248 crore and paying  1,433 crore to the US Exim Bank. To be sure, the estimated loss could be more as the airline has grounded dozens of planes, which has affected its operations.

The resolution plan aims to meet Jet’s needs through the new cash equity infusion of  5,135 crore, refinancing of aircraft loans and additional secured facilities worth 2,400 crore for 10 Boeing 777s, cash receivables by the International Air Transport Association of  725 crore, sale and leaseback of at least three Airbus A330 planes and  2,000 crore in non-fund based facilities. In doing so, the proposed exposure of lenders to Jet will increase by  3,081 crore to  8,859 crore.

After the conversion of the loans into equity, lenders will be allotted 114 million shares of the airline equivalent to a 50.1% stake in the firm. The trust that will subsume shares of Goyal and Etihad will hold 37.4%, with public shareholders holding the remainder.

Once the trust sells a part of these shares and the rights issue takes place that will induct two new shareholders, the structure of the company will change. The two new investors will hold stakes of 19.9% and 24.6%, respectively, in the airline. The holdings of the banks, public shareholders and trust will reduce to 29.9%, 10.7% and 14.9%, respectively.

Emails seeking comments from Jet Airways, Mashreq, HSBC and SBI remained unanswered till press time. An Etihad spokesperson said the airline “continues to work closely with lenders, Jet management and key stakeholders to facilitate a solution for Jet Airways”.

The LiveMint reported