BS: NCLAT can’t force us to change approved resolution plan: Essar Steel CoC

4 March 2019: The lenders to debt-ridden Essar Steel had approached the apex court on Monday challenging the NCLAT’s March 18 and March 20 orders in which it had asked the Resolution Professional (RP) of the company to call a fresh meeting of the CoC to consider redistribution of funds among the financial and operational creditors. The matter will be heard on April 8.

Essar Steel lenders have also challenged the NCLT Ahmedabad’s March 8 judgement in which it had, while approving the resolution plan of ArcelorMittal, suggested that the CoC of the debt-ridden Essar Steel reconsider the distribution of funds among the operational and financial creditors.  

In their plea before the apex court, the CoC of Essar Steel said that once the plan was approved by the NCLT and the NCLAT, any variation in payments to the financial and operational creditors of the company would amount to variation in the consent given by the members of the lenders’ committee.

“In the aforesaid circumstances, the directions to reconsider manner of distribution of proceeds under a resolution plan in light of the adjudicating authority’s (NCLT’s) suggestions and recommendations is completely unwarranted, unjustifiable, and equally without jurisdiction,” the CoC said in its plea.

Such directions by NCLT and NCLAT asking the lenders to reconsider the distribution of funds among the various creditors take away the rights of the CoC to make commercial decisions. The orders, the CoC said, proceed on an assumption that the distribution of proceeds under ArcelorMittal’s plan is “discriminatory and fails to balance the interest of all stakeholders including the operational creditors”.

The Business Standard reported

BS: Banks, others may lose over Rs 90,000 crore as Videocon sinks

4 April 2019: The beleaguered Videocon Group has admitted to stupendous outstandings to various lenders – public and private – amounting to over Rs 90,000 crore, making it perhaps the biggest corporate bankruptcy case in Indian banking history, official sources said on Thursday.

The company, however, said the total dues amount to around Rs.39,000 crore, most of which it plans to repay through its huge “oil assets”.

The two main group companies – Videocon Industries Ltd (VIL) and Videocon Telecommunication Ltd. (VTL) – owe Rs.59,451.87 crore and Rs.26,673.81 crore, respectively or a staggering Rs.86,125.68 crore to Indian banks, led by the State Bank of India (SBI).

Besides, 731 other Operational Creditors have made separate claims of Rs.31,117, 971,029 (VIL) and Rs.12,669,978,507 (VTL) for a total of over Rs.90,000 crore, the sources said.

Interestingly, even the Group promoters – Venugopal Dhoot, Pradipkumar Dhoot and Rajkumar Dhoot – have also filed claims of Rs.57,823.24 crores on the basis of personal guarantees provided by them for various facilities availed/guaranteed by VIL, which are under evaluation.

The VTL has also claimed Rs.17,86,94,69,659 from VIL on which there is no dispute and has been accepted in toto.

This and other data has been uploaded by the company’s Resolution Professional (RP) on its website on Thursday for varying periods ranging from November 2018 to January 2019.

In a statement late Thursday evening, Group Chairman Venugopal Dhoot said that because of “Obligor and Co-Obligor structure”, there is multiple counting of the same amount, and this structure was put in place at the time of restructuring the Videocon’s debts”.

“The actual dues are around Rs.39,000 crore. Videocon has oil assets of Rs 1 Lakh Crore to address this loan. Videocon is in NCLT and will be paying back majority of the loan through this oil reserve,” Dhoot assured.

Nevertheless, industry sources say this will be the biggest private sector bankruptcy in India after the Insolvency and Bankruptcy Code was introduced in 2016 for debt resolution – with wide-ranging ramifications for both the corporate world and the banking sector.

Last year, the company was sent by the SBI to the National Company Law Tribunal after the Dhoot-family owned company defaulted on its loans.

As per the IBC regulations, the company’s board of directors has been suspended and a RP appointed to manage its routine daily operations.

Revealing the figures of claims, VIL has named a whopping 54 Indian and foreign banks, financial institutions and even a cooperative bank to whom it owes a staggering Rs 59,451.87 crore.

Against this, claims of Rs.57,443.62 crore have been admitted while claims of Rs 1,149.57 crore have been rejected and those worth Rs.782.24 crore are being verified.

There’s the ICICI Bank with a claim of Rs 3,318.08 crore on VIL and another Rs 1,439 crore on VTL.

It may be recalled that in January this year, the CBI had booked the then ICICI Bank Managing Director and CEO Chanda Kochhar, her husband Deepak Kochhar, VIL’s Venugopal Dhoot and others, in an alleged quid pro quo loan scam, for criminal conspiracy and cheating.

Later that month, Chanda Kochhar quit but in a drastic action, she was sacked by the bank which also revoked all her entitlements and appointed a new COO, Sandeep Bakshi, in her place.

On January 31, the Justice B.N. Shrikrishna Committee appointed to probe the scam found her guilty of flouting the ICICI Bank’s Code of Conduct as she failed to discharge her fiduciary functions to recuse herself to avoid any conflict of interest.

Among the claims of VIL’s 54 lenders are 34 banks with SBI making the biggest claim of Rs.11,175.25 crore; from VTL’s total 34 lenders, SBI has claimed the highest amount of Rs.4,605.15 crore.

From VIL, the second highest claimant is IDBI with Rs.9,561.67 crore crore. From VTL, the Central Bank of India is the second biggest claimant with Rs.3,073.16 crore.

From VIL, the Latur Urban Cooperative Bank (Maharashtra) is the lowest claimant with Rs.33 lakh and from VTL, the lowest claim has been submitted by Bank of Maharashtra for Rs. 21.13 crore.

The Business Standard reported

LM: Banks to invite bids for Jet Airways stake sale on 6 April

4 April 2019: Lenders to Jet Airways (India) Ltd on Thursday said bids for a stake sale in the cash-strapped airline will be invited on Saturday and that the Jet Airways stake sale will be completed in a time-bound manner. However, in the absence of satisfactory bids, lenders may explore initiating bankruptcy proceedings against Jet Airways.

The statement clears the uncertainty over Jet Airways’ bailout plan after the Supreme Court on Tuesday struck down Reserve Bank of India’s (RBI) 12 February 2018 circular for bad loan resolution.

Jet Airways’ lenders intend to pursue the bank-led bailout plan for a stake sale in the company under the present legal and regulatory framework and intend to invite expressions of interest, they said in a statement. The bailout plan will lead to lenders becoming the majority shareholders of Jet Airways.

“This will be invited on 6 April and will need to be submitted by 9 April. The lenders are cognizant that the outcome of the efforts will depend on the interest shown by the parties on sale of stake in the company,” said the statement.

The decision was taken after lenders, led by State Bank of India (SBI), took stock of the Jet Airways’ operations as well as the regulatory developments.

While all efforts will be made for the Jet Airways stake sale, “other options may be considered if these efforts do not result in an acceptable outcome”, the lenders said.

The statement, however, did not explain what were the other options, but taking Jet Airways to a bankruptcy court seems a logical one.

Jet Airways had last month said that its debt resolution plan, involving changes in the board composition and conversion of lenders’ debt into equity, was on the basis of the RBI 12 February circular.

That circular had set a six-month deadline for defaulting companies to put in place a rescue plan before lenders dragged them to bankruptcy courts. The apex court ruling this week that the instruction was ultra vires raised uncertainty over the agreed upon rescue plan. Lenders wanted to be doubly sure about their decision in light of the apex court ruling.

On Thursday, RBI governor Shaktikanta Das said that the central bank will issue a fresh circular on the issue. In the meantime, government officials and experts have said banks can take decisions that are in their best interest, in spite of the apex court decision. That could save agreed upon bankruptcy resolution plans such as Jet’s.

The airline is now waiting for the infusion of the ₹1,500 crore committed by lenders for paying aircraft lessors as well as for clearing part of salary dues.

The company also needs to quickly re-induct its grounded planes. The airline, which is operating about 26 aircraft out of its original 119 fleet, cannot afford to let its fleet to go below 20 aircraft without risking a government review on whether it can continue to fly international routes. Civil aviation secretary Pradeep Singh Kharola said that no such review is on at the moment.

Jet Airways had last month said it defaulted on repayment of an external commercial borrowing (ECB) it had raised for working capital needs due to temporary liquidity constraints and that it was in touch with the lender on the issue.

Kharola said Jet Airways has informed that its proposal of bringing 75 planes in operation stands and that the airline was in talks with the lenders.

“We are monitoring the safety and convenience of passengers,” said Kharola.

On Thursday, Jet Airways shares rose 3.52% to ₹259.95 apiece on the BSE while the benchmark Sensex fell 0.49% to end the day at 38,684.72 points.

The LiveMint reported

LM: Avolon seeks to de-register two planes leased to Jet Airways

4 April 2019: Avolon, one of the world’s biggest aircraft lessors, applied to de-register two planes it had placed with Jet Airways Ltd, making it the first lessor to do so on a non-consensual basis with the struggling Indian airline.

Two subsidiaries of Dublin-based Avolon applied to India’s Directorate General of Civil Aviation (DGCA) to de-register two Boeing 737-800s, according to notices published on the regulator’s website.

Avolon has terminated the leases on the planes and currently has five more aircraft placed with Jet, said sources who declined to be identified due to the sensitivity of the matter.

There was no immediate response from Avolon to queries sent by Reuters.

The move by Avolon indicates an escalation of a crisis for Jet.

The airline, now controlled by its lenders, has had to ground more than three-quarters of its fleet of 119 planes, many due to non-payment to lessors, leading to hundreds of flight cancellations.

With debt of more than $1 billion, Jet has struggled to pay lenders, suppliers, pilots and lessors for months and was on the brink of bankruptcy, but was bailed out last month by state-run banks.

The consortium of lenders temporarily took a majority stake in the company, and agreed to issue a loan of 1500 crore ($217 million) to meet Jet’s obligations but the money has still not been released.

Frustrated by the unpaid dues, Jet’s lessors, including many of the world’s biggest players such as GE Capital Aviation Services, Aercap Holdings and BOC Aviation have taken control of their planes, sources said.

Reuters reported last month that some of Jet’s lessors had begun terminating lease deals. Since then, they have also moved a handful of planes out of India after getting a go-ahead from the airline.

Once India’s leading full-service carrier, Jet’s operational fleet stood at 28 planes as of Wednesday, a spokesman said.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

The LiveMint reported

BS: Zee may tap private equity investors for stake sale as Sony talks fail

4 April 2019: Zee Entertainment Ente­rprises is said to be considering tapping private equity (PE) investors as part of their stake sale process after the breakdown in talks with Sony.

Zee’s promoters had been in talks with multiple investors to offload 20-25 per cent stake from their shareholding of around 40 per cent, as they wanted to pay off loans taken against their shares.

Around 59 per cent of the promoters’ stake in the Essel group company was pledged to lenders as of December 2018. And, Japa­nese entertainment major Sony Corporation and Comcast-Atairos were the frontrunners in the race for the Zee promoters’ stake.

Now persons in the know said the promoters are planning to take the PE route to raise money as financial investors are less likely to demand ownership. “Seeking PE investment would be a logical move as a financial investor would be more concerned with getting returns than seeking control of the company,” said a fund manager privy to developments at Zee and who has outstanding loans with the promoter group that are backed by pledged shares.

A Zee spokesperson, in an emailed response, said: “The stake sale process is progressing in line with previously communicated timelines. Additional details cannot be shared at this stage due to confidentiality agreements.”

If the promoters take the PE route, there would be significant pressure on Comcast-Atairos, the second contender in the race, which is demanding over 30 per cent stake in the firm and is ready to pay Rs 400-420 per share, according to informed sources.

Sony was demanding as much as 35 per cent in Zee, for which it was ready to pay around Rs 450 per share, sources said.

Sony Pictures Networks India, a subsidiary of Sony Corporation which owns and operates the Sony Entertainment group of channels, declined to reply to queries. Comcast-Atairos could not be immediately reached for comments. While Zee had earlier said it would close the transaction by April, the deal is now likely to stretch till the moratorium period of September that it has got from its lenders.

Zee stock price was down 3.44 per cent on BSE and closed at Rs 403.70 per share.

In February, the Essel group, led by Subhash Chandra, had secured consent from lenders to service its debt, including time till September 2019 to repay loans.

This came after Zee and group company Dish TV saw their worst single-day fall on January 25. After that, Zee shares had rallied 39 per cent till Monday, when it closed trade at Rs 431 per unit with a market capitalisation of Rs 41,391 crore. The stock has since shed some of its gains trading at a market capitalisation of Rs 38,774 crore on Wednesday.

The saga

Nov 13, 2018: Zee announces its promoters were planning to sell up to half their shareholding in the firm to address capital allocation issues.

Jan 25, 2019: Zee’s share price falls 26% after reports surface of a link between parent Essel group and a firm being investigated for large deposits during demonetisation;  Zee and Essel group chairman Subhash Chandra comes out with open letter alleging negative forces at work

Jan 27, 2019: Essel group and lenders have first round of meetings to address concerns over repayment

Feb 3, 2019: Essel group gets formal consent from lenders to service debt, including time till September 2019 to repay loans

Feb19, 2019: Sony, Comcast-Atairos shortlisted for stake sale; others in the race include Reliance Jio, Amazon, Apple, Tencent and Alibaba

Apr 3, 2019: Talks with Sony break down due to differences over valuation

The Business Standard reported

ET: UV Asset Reconstruction Company likely to take over Aircel if 66% of lenders approve proposal

4 April 2019: Aircel is close to exiting bankruptcy proceedings, with the court-appointed manager picking UV Asset Reconstruction Company Ltd (UVARCL) to take over the telecom company, including its debt of Rs 20,000 crore, people with knowledge of the matter said.

Deloitte, which is managing the debt resolution process of the now-defunct telecom operator, presented the asset reconstruction firm as its choice before its committee of creditors last week, one of the persons said. “More than 50-60 companies globally had been approached to bid for the operator’s assets and from there UVARCL was the final choice whose name has been sent to all the bankers,” the person said.

The lenders to Aircel, majority owned by Malaysia’s Maxis, include State Bank of India, China Development Bank (CDB), Bank of Baroda and Punjab National Bank. They will have a month to study the proposal. If a better proposal comes up during this time, that will also be presented to the bankers, another person said.

Under the Insolvency and Bankruptcy Code, approval of at least 66% of lenders, based on their share in the total debt, is needed for a proposal to pass. If lenders can’t agree on any offer, the assets will go into liquidation. If the proposal is approved, “the company (UVARCL) will take over the liabilities of Aircel, run a certain part of the operations and put up the rest for sale,” the second person said. The asset reconstruction firm may decide to keep the fibre business or work in the bulk messaging space and sell the rest, he added.

“We have no comment to offer at this stage,” UVARCL said in response to ET’s queries. Deloitte said it was “bound by confidentiality obligations” and “unable to comment on company specific matters”. Aircel, SBI, CDB, Bank of Baroda and Punjab National Bank didn’t respond to emails seeking comment.

Aircel, which ran mobile services across India and was particularly strong in the South, shut its services in March 2018 and voluntarily filed for bankruptcy, after coming under pressure due to brutal price competition in the sector and the burden of debt it took to acquire airwaves and fund expansion. The bankruptcy court, while admitting the pleas of Aircel and its Dishnet Wireless and Aircel Cellular units, noted that its enterprise business, along with the company’s spectrum, towers, fibre and other assets, was worth Rs 32,000 crore.

The company had previously made several efforts to raise funds to escape liquidation. It was reported that even Bharti Airtel and Reliance Jio Infocomm had put in bids for the assets.

The company also waged legal battles, mainly against the Department of Telecommunications (DoT) and some operators, to recover its dues from them. It managed to recover Rs 639 crore from Bharti Airtel and DoT. The company is still fighting a battle against Bharti Airtel in the Supreme court over Rs 112 crore that it claims the larger operator still owes it.

The company has about 1,500 employees on its payrolls. Last year, a team of employees managed to raise Rs 90 crore from vendors and clients who owed the company money. This, and infusion of Rs 95 crore in April last year by Maxis, then allowed it to clear employees’ salary arrears.

The Economic Times reported

DNA: IL&FS arm may lose 90% of Rs 19K cr gross bad loans

4 April 2019: IL&FS Financial Services Ltd (IFIN) has a gross non-performing assets (GNPA) of around 90%, possibly a record for companies in its financial bracket.

“One of the things that would have struck many of you is that a company which reported GNPA of about 5% in March 2018 (has such a high GNPA later). I have heard double digit GNPA, but 90% GNPA, I am sure all of you would say is unusual by any standards that is the challenge which we have to face,” said Uday Kotak, non-executive chairman, IL&FS, on Wednesday.

Six months ago, on October 3, Uday Kotak-led management took charge of IL&FS group.

While updating on the last six months’ performance on the resolution and recovery processes undertaken by the management, N Sivaraman, chief operating officer, said, “Group entity’s recovery will be subject to the resolution process and what kind of valuation are we able to realise and get the money back.”

IFIN has an external exposure of Rs 10,656 crore, while the exposure to IL&FS Group and its various entities is Rs 6,849 crore. IFIN’s other current assets is Rs 1,300 crore, making the total exposure Rs 18,805 crore.

As of March 2018, the gross bad loans were around 5.3%, which jumped to around 61.8% in September 2018. This further increased to about 90% in December 2018.

“As far as enforcement with the third parties is concerned, the recovery process is on. But I still fear that we are staring at around 90% gross NPA, which means that these are difficult credits. We have lent money, but they have defaulted on their normal servicing. There’s a portion of the credit, which we have been able to collect Rs 697 crore from those assets. We have also been able to get Rs 235 crore from the recovery process,” said Sivaraman.

Showing confidence in improving the numbers, the senior executive said they are not saying that this 90% is to be forgotten.

“The recovery efforts are on. There are enough opportunities to make sure that we are able to recover. We will use the legal process to recover in the form of Insolvency and Bankruptcy Code (IBC), one-time settlement, even criminal process, etc; multiple ways of making the client or borrower to come to the table. We can’t predict the timeline over here. It’s going to be time consuming and long drawn process,” Sivaraman said.

At the group level, the total outstanding debt (fund based as well as non-fund based) currently stands at Rs 99,354 crore. Of this, Rs 48,470 crore is fund-based debt in four holding companies, namely, IL&FS, IFIN, IL&FS Energy Development Co Ltd (IEDCL) and IL&FS Transportation Networks Ltd (ITNL).

Kotak also expressed concern about the net worth of the entities and businesses of the group. “It would be reasonable to assume that there is significant erosion in net worth, and in many cases there could be significantly negative net worth,” he said.

LOSING SHIRT

  • IFIN has an external exposure of Rs 10,656 crore, while the exposure to IL&FS Group and its various entities is Rs 6,849 crore  
  • IFIN’s other current assets is Rs 1,300 crore, making the total exposure Rs 18,805 crore

The DNA reported

TOI: RBI capital identified by Jalan panel may back power loans

4 April 2019: The Bimal Jalan committee is expected to next week submit its report on the appropriate level of reserves to be maintained by the RBI. According to a report by Bank of America Merrill Lynch (BoAML), the panel will identify excess capital of $14 billion to $42 billion, which can be used to address stressed loans in the power sector.

On Tuesday, the Supreme Court quashed a circular from the central bank forcing banks to initiate insolvency proceedings against defaulting companies. This order has paved the way for restructuring of loans to the power sector.

While this is a relief to both lenders and borrowers it does not address the issue. Lenders did not want to start insolvency proceedings as projects were under implementation and would not find takers.

According to BoAML, the finance ministry should be able to form a much-needed public sector asset reconstruction or asset management company that manages banks’ non-performing assets (NPAs) in power with the Supreme Court ruling against the February 12 RBI circular, which had adopted a one-size-fits-all approach. This had also been proposed by RBI deputy governor Viral Acharya earlier.

“Our power analyst estimates that auctioning these power NPLs will need a haircut of 75%, that is $9 billion (Rs 63,000 crore) more. Banks can then transfer the $9 billion of cleaned-up power NPLs to the ARC/AMC. This can be done by either the government recapitalizing banks by an additional Rs 7,000 crore or it can deploy excess RBI economic capital set to be identified by the Jalan committee next week,” said Indranil Sen Gupta, India Economist with BoAML.

The report said that banks have recognized Rs 2.5 lakh crore of loans in the power sector. After provisions of Rs 1.2 lakh crore and haircut of Rs 63,000 crore, around Rs 70,000 crore worth loans left could be held by an asset reconstruction company by leveraging capital of Rs 7,000 crore, which would need to come from the government.

The Times Of India reported

LM: ArcelorMittal readies India team to run Essar Steel

4 April 2019: As ArcelorMittal SA inches closer to its first acquisition in India, the Luxembourg-based steel giant is readying a crack team that can take control of Essar Steel as soon as the deal is completed. Mint has learnt that the company has finalized office space in Mumbai and engaged Korn Ferry, a Los Angeles-based management consultancy, to hire senior executives for the new team.

ArcelorMittal has taken up around 300 seats at CoWrks in Mumbai, two people aware of the matter said. CoWrks is a shared office space provider promoted by Bengaluru-based realty firm RMZ Corp. In Mumbai, it runs a three-storey shared office space spread over 130,000 square feet that can seat up to 2,000 people. The current occupants include Ericsson AB, Boeing Co., ZTE and Razorpay.

It is unclear when ArcelorMittal plans to start operations from CoWrks and the term of its lease. The shared workspaces are typically leased for a few months to up to 10 years, said a CoWrks official, requesting anonymity.

“It’s common practice even for large companies to take up space at co-working offices. What it provides is flexibility as well as the speed of starting their operations. Secondly, it gives flexibility to expand or contract when required while they are testing their business model. Third is the hassle-free environment as companies do not have to manage the space,” said an executive with a shared office provider.

Essar Steel had 3,806 employees as of March 2018, as per its most recent annual report. It operates a 10 million tonne per year steel plant at Hazira, Gujarat.

While ArcelorMittal’s takeover bid for Essar Steel has been approved by the National Company Law Appellate Tribunal (NCLAT), lenders to Essar Steel are debating how the ₹42,000 crore upfront cash payment offered by the buyer will be split among various parties.

ArcelorMittal has given Korn Ferry the mandate to review the management team at Essar Steel and hire for senior positions, said two other people aware of the matter. The steel giant may be working with more consultants, these people said.

“The entire India acquisition is being driven by Aditya Mittal who has set up a large cross-functional team out of ArcelorMittal Belgium,” the first of the two people said. “ArcelorMittal employs several Indian expats across the world; they are likely to have identified CXOs out of the ArcelorMittal Belgium team. I think when they finally come in, they want to hit the ground running and turn the company around as soon as possible.”

Aditya Mittal is the son of Lakshmi Niwas Mittal, ArcelorMittal chairman and chief executive officer. A spokesperson for ArcelorMittal did not respond to emailed queries. Senior executives at Korn Ferry India and CoWrks did not comment.

“Unlike other steel companies that were completely stripped off talent by the time they were acquired under IBC (Insolvency and Bankruptcy Code), Essar Steel has very good manufacturing and marketing talent,” the first person said.

“So, I think this cross-functional team will first come to India, and they will review the entire senior and mid-level leadership team to assess fitment and capabilities, and the Essar structure and give them feedback. After the takeover and after putting all these things in place, they will recruit to fill the gaps.”

A senior executive at a private steel producer said ArcelorMittal may also explore executives at other steel companies. “But that maybe six months from now, not right away,” the executive said.

Anticipating this move, private steel producers are already identifying and ring-fencing their key talent and conducting risk-retention analysis. “However, we’re not too sure if there will be a large exodus because Essar already has a large team in place.”

“For manufacturing companies like ArcelorMittal, they would probably cast the net wider when it comes to looking for talents. Some of the roles would also be local in nature. These days the trend is not to look only among competitors but also to hire from outside the industry,” said Ronesh Puri, managing director, Executive Excess (India) Ltd, a hiring firm.

The LiveMint reported