ND: PFC may focus on 8 stressed power projects post SC order

3 April 2019: The Power Finance Corporation (PFC) plans fresh resolution of eight stressed power projects, including Essar Mahan’s 600 MW plant and GMR Raikheda’s 1,370 MW plant following the Supreme Court decision annulling an earlier RBI circular.

The top brass of the power sector lender held a meeting on Tuesday to assess the situation arising from the apex court’s order. Sources said that the issue of re-starting work on finalizing a resolution plan for few stressed assets was also discussed.

The eight stressed power assets have a total generating capacity of close to 9,000 MW and banks, including the PFC, have a total exposure of about Rs 22,000 crore. The projects also include the 1350 MW RattanIndia Nashik, 550 MW RKM Powergen, 700 MW Bharat Utkal, 2,400 MW KSK Mahanadi, 600 MW Jhabua Power, and 120 MW Jal Power.

The PFC had initiated the resolution process for these assets last year but sources said the matter got stuck over delays and the RBI circular hanging over these resolutions. The PFC was in advanced of negotiation with promoters of these entities to resolve the assets by November last year.

Sources said that in several of these cases, the promoters have offered to make a one-time settlement of loans. The proposals in this regard came from companies such as Essar to resolve the asset through a settlement offered by the promoters.

In few other cases such as KSK Mahanadi, RattanIndia Nashik, and Jhabua too, one-time settlement offers were given to the PFC by the promoters. However, with confusion over the RBI circular remaining, the matter faced delays and some of the projects sources said got referred to the National Company Law Tribunal (NCLT).

“We were in final stages of resolution for several of these cases and this will now be explored all over again with banks now being armed to take a call on resolution of stressed assets. The matter will however, need to be discussed with other banks before a fresh resolution plan is finalized,” said a source in the power sector lender.

Apart from one-time settlement, the resolution plan for some of the stressed power assets would be finalized by bringing in a strategic partner. In cases like Jal Power, the project could be considered for transfer to the Sikkim government, if the state is willing to take over the debt.

In March 2017, the Union government had classified 34 power plants as “stressed assets” with total bank exposure in these to the tune of Rs 1.8 lakh crore. The eight projects fall among this group of power projects. The RBI’s February 12 circular meant that most of these stressed land up in the bankruptcy court due to short time frame available for a bank-led resolution.

–IANS

As reported on newsd.in

ET: RBI unlikely to challenge SC order, may revise circular

3 April 2019: The Reserve Bank of India (RBI) could revise its bankruptcy circular to ensure that an amended version of the directive complies with norms, although the regulator cannot dictate a blanket order for taking all companies above a threshold to insolvency courts, lawyers said.

On Tuesday, the Supreme Court quashed the RBI’s February 12, 2018 circular, putting a 180-day deadline to refer bad loan accounts over Rs. 2,000 crore to the Insolvency and Bankruptcy Code (IBC). The apex court order was in response to a petition filed by power producers in August last year, challenging the constitutional validity of the RBI circular.

“This order means that the RBI cannot issue a blanket guideline without the approval of the government. But the majority part of the February 12 circular is still valid,” said Sapan Gupta, national head, banking and finance practice at Shardul Amarchand Mangaldas. “The RBI can rework the circular after consultation with the government. The only thing clear is that the RBI has to come up with specific guidelines for industries and not a general direction.”

The central bank is unlikely to challenge the SC order.

“We do not want to challenge an order which is already passed now. Our legal team is studying the order minutely and we may decide on the future course of action depending on that. The governor will meet the press after the policy announcement on Thursday where he may address the issue,” said a senior RBI official.

RBI will announce its monetary policy decision on Thursday.

Lawyers, however, believe that Tuesday’s judgement will not affect cases filed before the February 12 circular was announced.

“This judgement will affect the applications filed solely on the basis of the RBI circular. This means all applications filed on the basis of default or account being NPA can proceed under IBC,” said KP Sreejith, manging partner at IndiaLaw LLP.

In other words, this ruling will not affect the 12 cases, such as those of Essar Steel. These constituted 25 per cent of the NPAs and were directed to be specifically taken to the insolvency courts by the RBI. The 28 large cases which made up 40 per cent of the NPAs, referred late 2017, will also not be effected.

“But this ruling has now opened a Pandora’s box. It is entirely possible that anyone can approach the courts and seek exemption from being dragged into insolvency by quoting this order,” said Babu Sivaprakasam, partner at ELP Law.

The Economic Times reported

BQ: Jet Airways’ Lenders To Take Equity Pledge To Issue Rs 1,500-Crore Debt

3 April 2019: Lenders to Jet Airways (India) Ltd. are finalising a plan to infuse Rs 1,500 crore into the struggling carrier through debt against promoter shares, according to two people aware of the development.

The consortium of lenders, led by State Bank of India, may ask the airline’s founder Naresh Goyal and international partner Etihad Airways PJSC to pledge part of their stake in the company to approve the debt, the people quoted above told BloombergQuint requesting anonymity. The pledged equity, they said, would be kept in a trust and will be marked-to-market regularly.

SBI has already drafted the plan and circulated it among all lenders in the consortium for their approval, one of the two people quoted above said. Final approvals are still pending.

SBI, Jet Airways and Etihad Airways have yet to respond to BloombergQuint’s emailed queries.

Rajnish Kumar, chairman at SBI, had earlier told BloombergQuint that banks would be issuing Rs 1,500 crore debt support using an unlisted security. The company, in a statement after the lenders agreed to provide a lifeline, had said the funds would be used to pay lessors, vendors, creditors and employees in a phased manner.

With a debt of more than Rs 10,000 crore, Jet Airways is struggling to pay its dues, prompting an exodus of employees and planes being grounded by lessors. The airline yesterday informed the stock exchanges that it had to ground 15 more planes due to non-repayment of dues.

Jet Airways is currently operating only 28 planes in its fleet, Bloomberg reported quoting the Directorate General of Civil Aviation. Jet Airways, however, clarified that it is flying under a curtailed schedule with enough aircraft and is compliant with all applicable rules.

Earlier, a resolution plan prepared by SBI was not accepted by Etihad Airways and the Abu Dhabi-based carrier offered to sell its stake in Jet Airways. In a last-minute alternative plan, lenders decided to take over the majority equity of the debt-laden carrier, following which Goyal and his wife stepped down from the board. Goyal also stepped down from his position of chairman at the airline. Besides, the lenders mandated the creation of an interim management committee to address the daily business needs of the carrier.

The lenders are now in the process of looking for buyers who will take over the majority equity stake and infuse more capital into the company.

BloombergQuint had earlier reported that SBI had reached out to Tata Group and TPG Capital for a potential sale of the stake. The talks are still at a preliminary stage. The lenders, however, had determined that a new buyer would need to bring in capital worth Rs 4,000-5,000 crore into the company.

Jet Airways required Rs 3,500-4,000 crore to stabilise its operations. The new buyer would also have to repay the Rs 1,500 crore debt support.

The Bloomberg Quint reported

BQ: IBC Should Be Lenders’ Last Resort, Not Default Option

3 April 2019: The Supreme Court judgment on the Reserve Bank of India’s Feb. 12, 2018 circular on the resolution of stressed assets comes as a jolt to many. They see it as having the potential to disrupt an orderly process set in motion by the circular. They think that it will hamper banks in taking defaulters to the IBC. They fear that it will generally weaken the hands of bankers.

These apprehensions are misplaced. First, the circular has no bearing on any decisions taken by banks prior to the circular coming into force. Secondly, the judgment does not, in any way, prevent banks from taking defaulters to the Insolvency and Bankruptcy Code in ways prescribed in the Feb. 12 circular. They are still free to do so if they so decide in given cases. The crucial change now is that it is not mandatory for banks to follow the process laid down in the circular in all cases.

Where the judgment could potentially prove disruptive is with regard to cases that have gone to the IBC consequent to the Feb. 12 circular. These cases could now come under challenge. This is certainly a problem that banks have to wrestle with in the short-term. From a long-term point of view, however, the judgment could well turn out to be a positive for the banking system.

The judgment upholds the contention of the aggrieved petitioners—notably, power producers—that the RBI cannot order banks to follow a one-size-fits-all approach to resolution.

A default may occur despite the best intentions of the borrower and for reasons beyond the control of the borrower.

This is certainly true of power producers. They have suffered because the distribution companies do not pay on time, tariff revisions are unduly delayed, coal is not supplied as promised or power purchase agreements are not adhered to.

In such cases, stipulating a 180-day time frame for resolution, failing which the companies have to be liquidated creates a dire situation. It means that thousands of crores of valuable power assets will have to be sold as scrap given that there are not enough bidders for power sector assets. Both the government and Parliament’s Standing Committee on Finance have viewed this prospect with alarm. The Supreme Court judgment paves the way for exploring other options, something that both bankers and borrowers in the power sector have been keen on.

The problem with the Feb. 12 circular was not just the one-size-fits-all approach. Many bankers regard the 180-day time frame for resolution itself as highly unrealistic. They believe that a one-year time frame would be more appropriate. Where the time frame for resolution is unrealistic, going to the IBC becomes the default option in resolution. This is not a sound banking practice.

A bank-led resolution should be the first option and going to the IBC should be the last resort.

By giving more leeway for bank-led resolution, the Supreme Court judgment restores a certain balance to the resolution process.

That said, the onus is on the government to ensure that bank-led resolution is put on a firm footing. The fear psychosis at public sector banks is now so acute that management is reluctant to resolving cases on its own. It would prefer the IBC route if only because there is no fear of reprisal from the vigilance and other authorities. The Indian Banks Association has created a panel to oversee resolution plans for banks. It is not clear how far this has helped matters given the large number of cases that need resolution.

Many such panels will be required and they will have to staffed with bankers, chartered accountants, lawyers, and academics. The panels themselves will need a measure of protection. The way forward may well be to provide statutory backing to these panels. Parliament may need to consider passing an Act that provides for a ‘Loan Resolution Authority’ with the necessary powers and the necessary composition. The worst of all situations will be one where banks don’t arrive at resolution nor do they feel any compulsion to take cases to the IBC.

TT Ram Mohan is professor of finance and economics at IIM Ahmedabad.

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.

The Bloomberg Quint reported

CNBCtv18: Centre pays sovereign guarantees to ADB, KfW for IL&FS

3 April 2019: In a major development in the IL&FS crisis, the government has of late paid up on sovereign guarantees to Asian Development Bank (ADB) and KfW, a state-run bank of Germany, people in the know of the developments said.

Payment of around $2 million or Rs 13.84 crore has been made to ADB at the least in the last couple of months and around Rs 5 crore has been paid to KfW, sources said.

Significantly, the payment has not been disclosed at the National Company Law Appellate Tribunal (NCLAT) even though the appellate tribunal has asked both the government and the IL&FS board to take its approval before any step regarding the cash strapped group.

It has come to light that in 2009, the government of India had issued a sovereign guarantee on behalf of Infrastructure Leasing & Financial Services (IL&FS).

The Finance Ministry declined to comment on the IL&FS related queries while ADB did not respond to information sought by IANS. IL&FS also declined to comment on the matter.

In the legal developments, the NCLAT on March 29 told the board of the cash-strapped IL&FS to submit details of the group’s dues. The matter would be next heard on April 8.

The Delhi-based appellate tribunal also said that there would be no stay on the government’s resolution plan for the companies of IL&FS. However, all steps regarding the resolution of the group companies would have to be cleared by the appellate tribunal, it added.

The crisis in the infrastructure lending company came to light when it defaulted on its commercial papers in Septemeber in 2018.

Last year, the central government superseded the management of the beleaguered company through a National Company Law Tribunal (NCLT) order and appointed a six-member board led by Uday Kotak, MD and CEO of Kotak Mahindra Bank, to restore its financial solvency.

Key public sector lenders and undertakings, such as the Life Insurance Corporation of India (LIC) and the State Bank of India (SBI), have a 25.34 per cent and 6.42 per cent stake, respectively, in the firm which has around Rs 91,000 crore in long-term debt.

CNBCTV18 reported

RT: Jet Airways grounds three-fourths of fleet as it awaits bailout funds

3 April 2019: India’s Jet Airways has been forced to ground more than three quarters of its fleet after failing to pay lessors, as the debt-laden carrier struggles to secure bailout funds promised by state-run banks.

Jet Airways aircrafts are seen parked at the Chhatrapati Shivaji Maharaj International Airport in Mumbai, March 26, 2019.

Jet struck a deal earlier this year to escape bankruptcy under which State Bank of India (SBI) and other lenders were to pump in $218 million and temporarily own a majority stake in the airline. But it has not got any of the funds so far and has not paid its employees for March, said a person with direct knowledge of the matter.

Once India’s leading full-service airline, Jet was founded 25 years ago by Naresh Goyal at a time when state-run carrier Air India was the only real formidable opponent. In recent years, however, Jet has struggled to compete with low-cost carriers such as IndiGo and SpiceJet that now dominate Indian skies.

Jet’s operational fleet stood at 28 aeroplanes as of Wednesday, a company spokesman told Reuters, versus 119 planes last year.

At least 69 aircraft have been grounded due to money owed to lessors, showed stock exchange filings by Jet, while the remainder are out of service for maintenance.

Some lessors with direct knowledge of the matter said Jet had told them it would pay for one month’s rental and maintenance by the end of last week, but no payment had been received.

“We already have five to six months of delinquencies and we were promised just one month and even that hasn’t been paid. This is very disappointing,” said one of the people, who declined to be identified due to the sensitivity of the matter.

Jet did not respond to specific queries on lessor and salary payments but said in a statement that the airline has informed the aviation regulator it is operating a curtailed schedule.

PRECARIOUS SITUATION

The Jet rescue plan itself has come under a cloud. It was based on a directive issued by the country’s central bank last year but India’s top court quashed that directive on Tuesday.

SBI and Jet did not respond to requests for comment on the court ruling. But some such as Madhukar Ladha, an equity analyst at Mumbai-based firm HDFC Securities, did not see Jet’s rescue package being in peril as the deal was already agreed.

After the bailout was announced, Jet told India’s aviation regulator it would not ground any more planes and would fly 40 more aircraft by the end of April, taking its operational fleet to 75 planes.

But late on Tuesday, Jet said it grounded 15 planes.

With a smaller operating fleet, Jet has given pilots and cabin crew the option of flexible working days and taking extended leave with or without pay, showed a note to staff reviewed by Reuters.

Even as the aircraft groundings are currently impacting Jet’s operations, the airline needs to rationalise its fleet and focus on profitable routes, said HDFC Securities’ Ladha.

“The situation remains precarious,” he said.

Reuters reported

ET: Ongoing bankruptcy cases to remain unaffected despite ruling

3 April 2019: Even though, the Supreme Court has quashed the RBI circular of last year that pertains to the provisions for declaring a company bankrupt even on a one-day overdue, it is unlikely to have major impact on cases which are ongoing in the normal course.

On Tuesday, division bench of the Supreme Court comprising of Justice RF Nariman and Justice Vineet Saran declared the RBI circular ultra-vires and said all proceedings under the rule are invalid.

“All cases in which debtors have been proceeded against by financial creditors under Section 7 of the Insolvency Code, only because of the operation of the impugned circular will be proceedings which, being faulted at the very inception, are declared to be non-est.”

The banking regulator RBI on February 12, 2018 had issued a circular saying that lenders have to provide for resolution plan within 180 days in case of large account of Rs. 2,000 crore and above. The circular had further clarified that if a resolution was not found by August 27, Non Performing Asset (NPA) accounts should be sent for the Corporate Insolvency Resolution Process (CIRP).

“I don’t see a major impact of this ruling on the Insolvency and Bankruptcy Code (IBC) as a whole,’’ said L Vishwanathan, Partner, Cyril Amarchand Mangaldas. “All those cases, which were filed before the issuance of this circular will continue to be in the stages where they were. Even cases which were filed due to the said circular can also be initiated afresh by lenders by following the IBC process if they choose so.”

Last year, on September 11 the Apex Court had asked banks to maintain status quo and not to initiate insolvency proceedings against loan defaulting companies until further order.

According to Sapan Gupta, National Practice Head at Banking & Finance at the law firm Shardul Amarchand Mangaldas & Co, with this Supreme Court order, now it is no longer compulsory for banks to follow the impugned circular.

“The lenders can now take commercial decisions with regards to taking companies to Corporate Insolvency Resolution Process (CIRP). The impact of this ruling will be only on those cases where the process was initiated due to this circular. However, cases where banks are able to convince NCLTs that they took independent view and initiated the resolution process irrespective of the impugned circular, the process may continue in tribunals in normal course,” adds Gupta.

Lawyers involved in the dispute are of the view that this ruling brings much needed clarity for lenders and borrowers both.

“In light of the Supreme Court judgment, RBI may have to determine such issues on a case-to-case basis keeping in view the observations of the Supreme Court,” said Amit Kapur, Joint Managing Partner of law firm JSA who was advising Association of Power Producers, Rattan India, GMR, GVK and Coastal Energen in the dispute.

There is also a question mark over assets where restructuring processes which are completed or nearing completion. “With the threat of IBC proceedings mitigated, and recent CCEA, MoP and MoC notifications implementing the recommendations of the High Level Empowered Committee, there is now room for regulatory and policy action to salvage or reform the sectoral issues and revive the power companies,” adds Kapur.

However, this ruling may also lead to further litigation and counter-litigation as well.

“This is definitely a setback for the time being in so far as action initiated IBC pursuant to the circular is concerned,” said Rajesh Narain Gupta, managing partner at law firm SNG & Partners.

The Economic Times reported

DNA: Fewer default cases may head to NCLT

3 April 2019: The squashing of RBI’s February 12 circular is likely to see fewer default cases being referred to the National Company Law Tribunal (NCLT), central bank coming out with revised prudential norms and banks getting a major relief in terms of provisioning for bad assets.   

However, most experts said they would wait for the detailed judgement and response of RBI before deducing the impact of the SC’s order on the banks and borrowers.

“Automatically, the number of cases going to the NCLT under Insolvency and Bankruptcy Code (IBC) law will get reduced with this judgement. The RBI governor had said he will not dilute the circular. Now, he will have to go by the SC ruling,” said a banking analyst with a leading management consultancy, who did not want to be named as he is working with several banks.

A former banker, who spoke anonymously to DNA Money said the SC had used the word “unconstitutional” to establish the constitutional rights of the borrowers that had been breached by central bank’s directives issued last year.

“What are reasons the SC has found for treating the RBI circular as unconstitutional. Unconstitutional is a strong word. It must be saying that it is going against the established rights of the borrowers,” he said.

The ex-banker expects the “the position” before the RBI circular to be restored following the SC order. “If the SC court order is followed then till the account become out-of-order after 90 days, no action can be taken for declaring it as NPA.” 

“As there will now be no automatic route to refer the case to NCLT, banks will have to follow a certain basic rule to refer a case to NCLT,” the ex-banker added.

Kalpesh Mehta, partner at Deloitte Haskins & Sells, told DNA Money with the cancelling of the earlier circular, the RBI will have quickly issue guidance for financial reporting for March. “Because March reporting is round the corner – within a week or 10 days. All banks will have to start recognising provisioning against the circular and reporting those numbers,” he said.

Mehta said while dilution of RBI’s provisioning norm may offer some respite to banks it may not necessarily be done away with as there were guidelines by other authorities like the Securities and Exchange Board of India (Sebi) that will be required to be adhered to.

“Making a provisioning is a measure of prudence for the banks. One has to see whether it was because of regulatory guidelines that they were making the provisions or whether the asset quality has actually deteriorated. Sebi guidelines also require to make provision based on doubtful, sub-standard assets and losses. That guidelines was always there,” he said.

Mehta said until the RBI came out with its decision on whether it was withdrawing the guidelines or not, SC’s ruling will remain as “a matter legal judgement” for the banks in the absence of guidance by the central bank.  

He said RBI had the option to appeal for a four-judge bench against two-judge bench judgement; “This will be the banking regulators course of action if it believes it had taken the right measure at that point in time”.

Cyril Shroff, managing partner, Cyril Amarchand Mangaldas, called it a “major development” and said it showed how proactive the judiciary has been. “Whilst it’s too early to say, but if banks voluntarily still invoke IBC – the practical impact will be minimal,” said Shroff.

The DNA reported