ET: Five power producers prepare to oppose insolvency proceedings

10 April 2019: Five major stressed power producers are preparing to oppose insolvency proceedings on the grounds that lenders filed petitions against them as per a central bank circular on debt resolution that was recently quashed by the apex court, people familiar with the plans said.

The five power projects of Lanco Amarkantak, Avantha Power, KSK Mahanadi, Rattan India Power (Amravati project) and Rattan India Nashik Power (formerly Indiabulls) account for over Rs 50,000 crore of unpaid dues. Power Finance Corporation and Axis Bank filed the insolvency petitions in the five projects, though all major lenders are part of the consortia that provided the loans.

Lanco Amarkantak, which owns a 1,920 MW project in Madhya Pradesh, sought time from the National Company Law Tribunal on Wednesday to provide documents to support its contention that Axis Bank had initiated insolvency proceedings against it under the now-defunct RBI circular on stressed assets, the people said.

KSK Mahanadi, an operational project for which the Adani Group had bid and later backed out, cited the apex court ruling at the NCLT on Monday to argue its case for withdrawal from insolvency proceedings. Power Finance Corporation had initiated the insolvency proceedings in this case.

Avantha Power’s Jhabua project has also made a similar contention in the National Company Law Appellate Tribunal (NCLAT). Rattan India Power and Rattan India Nashik are likely to follow suit shortly.

The Supreme Court ruled on April 2 that the Reserve Bank of India’s circular of February 12, 2018, on the resolution of stressed assets was ultra vires, or beyond the scope of its legal authority. In its circular, the RBI called on lenders to identify assets “immediately on default,” starting with loans on which any amount was due from one to 30 days, and provided a six-month window to resolve the default or take the borrower to insolvency proceedings.

However, lenders are of the view that there is no scope for any restructuring in these projects and invoking corporate insolvency is the only way forward.

“We are awaiting fresh guidelines from the central bank on resolution of stressed assets, but in cases where there is no other way out, we will file an affidavit in court stating that they need to be resolved through the Insolvency and Bankruptcy Code,” said a senior executive with Power Finance Corporation.

He cited Rattan India’s Amravati project, where a one-time settlement offer was worked out, but the investor who had initially offered Rs 600 crore didn’t turn up later.

“In case of Avantha Power (Jhabua), already one of the operational creditors has approached the Kolkata bench of NCLT. So there is no going back on that as well,” he added.

Mails sent to Lanco group, Avantha, KSK Energy and Rattan India went unanswered.

“As a matter of policy, Axis Bank does not comment on client-specific matters,” a spokesperson said in response to ET’s queries.

The power producers have argued that their projects suffered from time and cost overruns and lack of adequate power purchase agreements with distribution companies as well as fuel supply issues. They sought government assistance to bail out the projects.

“In the light of the Supreme Court order, the RBI will take necessary steps, including issuance of revised circular as may be necessary for expeditious and effective resolution of stressed assets,” central bank governor Shaktikanta Das said on April 4.

A senior bank executive said state-run lenders will not be keen to go for further restructuring unless there is some government support, as in the case of Jet Airways. “Who will take that risk and be open to undue vigilance investigation? Going through NCLT is a clean and court-approved process,” he added.

The Economic Times reported

BS: Lenders seek to continue 8 bankruptcy proceedings

10 April 2019: Lenders have decided to file an affidavit in the National Company Law Tribunal (NCLT) to continue insolvency proceedings against stressed power projects that were referred to the bankruptcy court on the basis of the February 12 circular of the Reserve Bank of India.

The RBI circular has been declared ultra vires by the Supreme Court. This has also put a question mark on several cases of stressed assets that were referred to the NCLT by the lenders as all earlier proceedings becomes infructuous.

“We are filing an affidavit in the NCLT not to stall insolvency proceedings against eight stressed power projects that were referred to the appellate body post the RBI circular. The power projects remain in stress and lenders believe that there is no point to start resolution of these all over again,” said a top official of a power sector lending institution who did not wish to be named.

Lenders, however, said that they would also wait for the issue of a new circular from the RBI to start resolution of other stressed assets. The resolution of assets has almost stalled after the Supreme Court order as none of the bankers wants to take risk of approving a resolution now for the fear of future vigilance action.

The Supreme Court’s April 2 order raised question marks over the fate of about 8 power projects including the 3,600 MW KSK Mahanadi Power Co. Ltd, the 1,920 MW Lanco Amarkantak Power Ltd, the 600 MW Avantha Power (Jhabua), the 1,350 MW Rattan India Power Ltd. (Nasik), the 550 MW RKM Powergen, and the 700 MW Bharat Utkal.

These projects were referred by a consortium of lenders including the Power Finance Corporation to the NCLT as per the provisions of the February 12 RBI circular, which said that it would be mandatory for projects in default to be referred to the NCLT after 180 days from start of the resolution period. As 180 days for these projects ended in August, they were referred to the NCLT.

Sources said that banks are expected to take recourse to an affidavit also in case of few other stressed assets in sugar and shipping sectors that also got referred to the NCLT and now face uncertainties.

In all about 70 cases with total bank exposure of about Rs 4 lakh crore were declared as stressful by the banks post RBI circular. This included 34 stressed power projects worth 40,000 MW having total bank loans of close to Rs 1.8 lakh crore.

It is not that institutions, including the PFC, did not try to resolve certain power projects, but none of the attempts were successful. In the case of KSK Mahanadi, Adani Group showed interest but it soon withdrew from the race as lenders were divided on the level of the haircut. In case of an Rs 600 crore one time settlement scheme worked out for Lanco Amravati, the sole investor backed out from the race at the last minute.

With relation to Avantha Power (Jhabua), an Rs 100 crore settlement for the PFC got stalled after one of the operational creditors took the asset to the NCLT. In case of Prayagraj, the resolution has got delayed as the UP power regulator has asked the project to reduce the tariff by 11 paisa. This may change the bid value.

The Business Standard reported

BS: NCLT clears Sterling SEZ’s one-time settlement offer

10 April 2019: The National Company Law Tribunal (NCLT) on Wednesday cleared a controversial proposal by public sector banks to withdraw bankruptcy proceedings against Sterling SEZ and Infrastructure Ltd after the company’s absconding promoters made a one-time settlement (OTS) offer to the lenders from overseas.

As the promoters of the company are not in India, the court asked the company’s resolution professional to act as an administrator of the company till further orders. The banks have taken a haircut of close to 65 per cent in the account and 90 per cent of its lenders have agreed to the one-time settlement.

The firm was referred to the NCLT in July last year for debt resolution under the Insolvency and Bankruptcy Code 2016 after the Sterling Biotech group failed to repay its bank dues worth Rs 8,100 crore. Sterling SEZ is the second company from the Sterling Biotech group in which the lenders accepted an one time settlement offer from the promoters under Section 12 A of the Insolvency and Bankruptcy Code 2016.

On February 12 2019, the NCLT had asked the Enforcement Directorate (ED) to hand over assets of Sterling SEZ to the resolution professional, so that the value of  assets does not erode and they can be sold to repay banks. This was after the physical assets of Sterling SEZ were attached by the ED, when the firm defaulted on bank loans and its promoters fled the country.

The ED had earlier informed the NCLT that the Sterling Biotech group also comprised of Sterling International Enterprise, PMT Machines, Sterling SEZ and Infrastructure, Sterling Oil Resources, and Sterling Port, which were under investigations by multiple agencies.

It said the Sterling Biotech group obtained credit facilities of over Rs 5,000 crore from banks, and these loans turned into non-performing assets. The banks conducted a forensic audit to ascertain the end-use of loans availed by the SBL Group.

The ED received the audit report from Andhra Bank and State Bank of India, which showed the use of loan funds for non-mandated purposes, payments made to non-existent parties, and non-justificatory payments to directors, etc.  

As on date, credit facilities to the extent of Rs 8,100 crore have been availed by the group and this has been declared a fraud account by the concerned banks. It also said the CBI registered an FIR on October 25, 2017, against various promoters of SBL group, on the basis of which the ED investigated the offences under the Prevention of Money Laundering Act.

As the investigation kept unfolding, the role of different accused persons and determination of various assets that were proceeds of crime/laundered money led to the attachment of properties involved in money-laundering.

These were proceeds of crime to the tune of Rs 4,274 crore, and resulted in the filing of different prosecution complaints, the last being filed on October 23 last year before the special PMLA Court, Patiala House, New Delhi.

The PMLA Court issued non-bailable warrants against the accused persons/promoters of SBL group on October 25, 2018. It said the promoters of the company had fled the country. A PTI report had earlier stated that the promoters had asked the court to quash these warrants.

In the case of Sterling Biotech, a separate bench of NCLT had earlier asked for responses from almost all regulators, including the Reserve Bank of India, the Central Bureau of Investigation, the ED, and markets regulator Securities and Exchange Board of India, after lenders agreed to an OTS offer made by Sterling’s promoters.  

Sterling Biotech made an OTS offer of ~3,110 crore, amounting to a 65 per cent haircut for banks. The financial creditors had made claims worth ~15,000 crore against Sterling Biotech, according to the resolution professional’s statement to stock exchanges.

However, the lenders’ attempt to withdraw the insolvency proceedings against Sterling Biotech did not materialise in the last hearing on March 27, and the NCLT has listed the matter for hearing on April 26.

On January 13 2019, the ED arrested a top official of Andhra Bank in connection with the money laundering probe into the group.

The Business Standard reported

NIE: Surgery on bad loans seems to be working out

10 April 2019: The worst seems to be over for India’s banking sector, which undertook a ‘deep surgery’ on bad loans stretching about 36 months. Corporate stress appears to have bottomed out improving the overall asset quality, particularly for public sector banks, which account for over 70 per cent of the sector. Though in terms of profitability, state-run banks are yet to make a 360-degree turn, private banks are likely to report an earnings tailwinds in the just concluded quarter ending March, 2019. Overall, incremental stress will ebb during the current fiscal, though RBI’s divergence report on some banks could once again rattle investors and upset the market. 

Though corporate stress eased broadly, some amount of trouble too cannot be ruled out from real estate, which is facing liquidity pressure and weak sentiment. Besides, trouble is easy to spark from IL&FS, which is undergoing a resolution plan under the government-appointed board. “IL&FS still continues to be an overhang even with regard to its operational subsidiaries, and provisioning for the same will eat into this quarter’s earnings,” noted brokerage Edelweiss Research. 

Banks may have made a stunning `3 lakh crore worth loan recoveries, but the general sense is that the debt resolution process has been slower than desired and so is the recovery rate. According to Edelweiss, the next trigger for comfort will be driven by resolutions across NCLT cases as it will lead to upgrade of over 25 per cent system-wide gross NPAs with minimal incremental provisioning. Recoveries from big accounts like Essar Steel (for which an order has already been passed) are expected during the current quarter, which will provide earnings cushion with interest income reversals. 

As for overall performance, banks’ core operating performance is expected to increase by about 23 per cent in FY19 over the previous year, with growth and asset quality tailwinds on the horizon. Weakening competition and portfolio buy outs will bolster banks to sustain growth.

The moderating deposit growth could, however, throw a spanner in the works. While banks’ race for deposits will keep deposit rates elevated, intense competition for better-rated assets will keep credit pricing power in check, Edelweiss said. Such a move will create downward pressure on net interest margins, the key metric indicating banks’ financial performance. However, interest accruals in ensuing quarters due to resolutions expected under NCLT cases should provide one-time support to NIMs going forward. 

Typically, the last quarter is considered a seasonally strong period thanks to higher income, marked by higher processing fees, third-party distribution income and others. Besides, dividend and interest on income tax refund, especially for PSU banks tend to flow in Q4, adding to fee income. This growth may not reflect on an annual basis, but will be robust sequentially, said Edelweiss.

The New Indian Express reported

ET: NBCC seeks more time to revise bid for Jaypee Infratech

10 April 2019: State-run construction company NBCC has sought an extension of more than two weeks from the Committee of Creditors (CoC) overseeing Jaypee Infratech’s insolvency resolution process to submit a revised bid for the company, said two persons with direct knowledge of the development.

This may lead to further delay in the insolvency process of the troubled real estate developer even as the stipulated 270-day deadline for CoC to decide on a winning bid ends on May 6.

“The extension sought by the company is in the wake of its CMD Anoop Kumar Mittal’s term coming to an end last week,” said one of the sources. “This may result in some more delay in the entire process as NBCC was earlier seen leading the race.”

Anuj Jain, the interim resolution professional (IRP) who is carrying out Jaypee Infratech’s insolvency process, had earlier shortlisted four players—NBCC, Kotak Investment, Singapore-based Cube Highways and Suraksha Group—and asked them to submit their resolution plans by February 15.

In a meeting held on February 18, the lenders had discussed the bids received from NBCC and Suraksha Asset Reconstruction Company. Both the bidders had also made separate presentations to the lenders group. They had then decided to hold more meetings with both NBCC and Suraksha before taking a final call.

On April 5, 2019, NBCC informed the stock exchanges that Shiv Das Meena, additional secretary of housing and urban affairs ministry, has been given the additional charge of the corporation after Mittal left.

ET’s email query to NBCC remained unanswered until the time of going to press on Tuesday. IRP Anuj Jain declined to comment for the story.

As part of its resolution proposal for Jaypee Infratech, NBCC had offered to hive off the Yamuna Expressway between Delhi and Agra, and give it to the lenders. The value of the road project is estimated to be over Rs 6,000 crore given the toll collection.

NBCC had asked lenders to provide Rs 2,000 crore in lieu of this project. Half of this amount, it offered to be returned to lenders as part of repayment package and balance to be used for completion of residential projects that are stuck, which is estimated to cost Rs 1,500 crore. It planned to complete these projects in four years. NBCC has also offered to give 1,400 acres as debtasset swap to the lenders.

A subsidiary of Jaypee Group flagship firm Jaiprakash Associates, Jaypee Infratech is developing about 32,000 flats, of which it has delivered only 9,500 units.

In February, Jaiprakash Associates, promoter of Jaypee Infratech, had once again submitted a proposal to lenders of its subsidiary to settle dues. “The promoter JAL also submitted a settlement proposal under Section 12A of the IBC, 2016 for consideration of the CoC,” Jaypee Infratech had said in a regulatory filing then.

The Economic Times reported

BS: Lenders agree to Sterling SEZ’s offer for a one-time settlement

10 April 2019: Public sector banks have decided to withdraw bankruptcy proceedings against a second Sterling group company — Sterling SEZ and Infrastructure — even as the fate of a similar one-time settlement (OTS) offer is yet to be decided by the National Company Law Tribunal (NCLT) in the case of Sterling Biotech.

The Mumbai Bench of NCLT will hear on Wednesday the lenders’ petition regarding the offer made by Sterling SEZ. The firm was referred to the NCLT in July 2018 for debt resolution under the Insolvency and Bankruptcy Code 2016.

In February this year, the NCLT had asked the Enforcement Directorate (ED) to hand over the assets of Sterling SEZ to the resolution professional, so that the value of the assets does not erode and they can be sold to repay the banks. This was after the physical assets of Sterling SEZ were attached by the ED, when the firm defaulted on bank loans and its promoters fled the country.

The ED had earlier informed the NCLT that the Sterling Biotech group also comprised Sterling International Enterprise, PMT Machines, Sterling SEZ and Infrastructure, Sterling Oil Resources, and Sterling Port, which were under investigations by multiple agencies.

It said the Sterling Biotech group obtained credit facilities of above Rs 5,000 crore from banks, and these loans turned into non-performing assets. 

The banks conducted a forensic audit to ascertain the end-use of loans availed by the SBL Group. The ED received the audit report from Andhra Bank and State Bank of India, which showed the use of loan funds for non-mandated purposes, payments made to non-existent parties, and non-justificatory payments to directors, etc.  

As on date, credit facilities to the extent of Rs 8,100 crore have been availed by the group and this has declared a fraud account by the concerned banks. It also said the CBI registered an FIR on October 25, 2017, against various the promoters of SBL group, on the basis of which the ED investigated the offences under the Prevention of Money Laundering Act.

As the investigation kept unfolding, the role of different accused persons and determination of various assets that were proceeds of crime/laundered money led to the attachment of properties involved in money-laundering. 

These were proceeds of crime to the tune of Rs 4,274 crore, and resulted in the filing of different prosecution complaints, the last being filed on October 23 last year before the special PMLA Court, Patiala House, New Delhi. The PMLA Court issued non-bailable warrants against the accused persons/ promoters of SBL group on October 25, 2018. It said the promoters of the company had fled the country. A PTI report had earlier stated that the promoters had asked the court to quash these warrants.

In the case of Sterling Biotech, the NCLT’s Mumbai Bench had earlier asked for responses from almost all regulators, including the RBI, the CBI, the ED, and markets regulator Securities and Exchange Board of India, after lenders agreed to an OTS offer made by Sterling’s promoters. Sterling Biotech made an OTS offer of Rs 3,110 crore, amounting to a 65 per cent haircut for banks. The financial creditors had made claims worth Rs 15,000 crore against Sterling Biotech, according to the resolution professional’s statement to stock exchanges.

The Business Standard reported