LM: More banks likely to have been singed by Bhushan Power fraud

8 July 2019: More lenders to bankrupt Bhushan Power and Steel Ltd may say that the company misappropriated funds given to it after state-run Punjab National Bank first reported a ₹3,800 crore fraud, a top bank official said, requesting anonymity.

On Saturday, Punjab National Bank (PNB) disclosed to stock exchanges that it had detected that 85% of its exposure to bankrupt steel mill had been siphoned off and that Bhushan Power had misappropriated bank funds and manipulated account books.

“The forensic audit was initiated by SBI (State Bank of India) and they discussed it with other lenders,” Sunil Mehta, managing director and chief executive of PNB, said in an interview on Monday.

So far, apart from PNB, no other lender to Bhushan Power has reported a fraud related to the company. While PNB’s total exposure is at ₹4,399 crore, more than 85% of it has been classified as fraud, as admitted by the bank in the regulatory filing.

A complaint registered on 5 April by the Central Bureau of Investigation (CBI) pegged the fraud at Bhushan Power at ₹2,348 crore; PNB has now disclosed that the fraud is bigger at ₹3,805.15 crore.

“One year ago, the government had given us all a direction that all non-performing accounts (NPAs) beyond ₹50 crore should go through a forensic audit and be declared as a fraud wherever necessary. (Bhushan Power) is an old NPA and is at an advanced stage of resolution. SBI has the largest share here. We decided to disclose it to the stock exchanges as a matter of extra precaution and also because our exposure is substantial,” said Mehta.

The CBI first information report (FIR) on Bhushan Power could have nudged the forensic audit to reach its conclusion, said a banker who is part of the loan consortium.

Although forensic audits are commissioned in all accounts once they are referred to the National Company Law Tribunal (NCLT), these are inconclusive in most cases, the banker said on condition of anonymity.

Other lenders of the consortium may also be affected because 33 lenders have exposure to Bhushan Power.

“Once an account is reported to be fraudulent to the Reserve Bank of India (RBI), the bank has to fully provide for it and set aside money equal to the outstanding loan to the borrower,” explained the banker.

Bhushan Power is one of the 12 large loan accounts that lenders referred to NCLT following a nudge from RBI.

Meanwhile, JSW Steel, the highest bidder for bankrupt Bhushan Power, will stick to its final bid of ₹19,700 crore for the company in the wake of recent fraud allegations at the company. “JSW Steel might decide to alter its bid in the future, if more information is revealed about the nature of the fraud,” the first person cited earlier said. “At this moment, the company has not made a decision about this. But if there are chances of additional liabilities being imposed on the bidder in future, then JSW might choose not to go ahead with the acquisition.”

JSW Steel made the highest bid for Bhushan Power, with an upfront cash payment of ₹19,350 crore to the lenders and an equity infusion of ₹350 crore to revive the steel mill’s operations. Bhushan Power owed ₹47,204 crore to its lenders as of 30 January 2018. The bid is awaiting NCLT approval. Last week, the Supreme Court stayed an order by the Punjab and Haryana high court and urged NCLT to complete the resolution process.

“Allegations of fraud in some accounts under IBC (Insolvency and Bankruptcy Code) is not new,” said Babu Sivaprakasam, partner at Economic Laws Practice. Also, recent transactions of such nature will be revealed during insolvency process through forensic audit. Simultaneous criminal proceedings will not affect the resolution under the IBC process in general. This legal position is upheld by NCLAT (National Company Law Appellate Tribunal) and by the Bombay high court as well.”

“I believe what the bidders will look for is that they are getting clean, unencumbered property, which won’t be subject to investigation or claims later, like under the Prevention of Money Laundering Act (PMLA),” Sivaprakasam said. “They will want to be sure that the assets are not tainted and the title and ownership will not be challenged at a future date, especially post the recent judgement of the Delhi high court on the overriding effect of PMLA over IBC.”

An email sent to Bhushan Power’s resolution professional Mahender Kumar Khandelwal did not elicit a response till press time. JSW Steel declined to comment.

Under RBI guidelines, bank frauds should be reported to the central bank within three weeks from the date of detection. The provisions can be spread over a period not exceeding four quarters from the quarter in which the fraud has been detected. However, if there is a delay in reporting it, the entire provisioning is required to be made at once.

The CBI FIR named chairman Sanjay Singhal; vice-chairman Aarti Singhal, along with directors of Bhushan Power, as suspects in the case. The FIR said Bhushan Power, through its directors and staff, availed of various credit facilities from 33 different banks and financial institutions between 2007 and 2014 and the outstanding default as on 30 January 2018 was ₹47,204 crore.

“The amount of ₹2,348 crore was dishonestly and fraudulently diverted by Bhushan Power through its directors and staff from five cash credit accounts to more than 200 companies,” it said.

The LiveMint reported

BS: YES Bank makes two senior management appointments; stock rises 5.5%

8 July 2019: Private lender YES Bank has appointed Rajeev Uberoi senior group president (governance and control) and Anurag Adlakha senior group president and head of financial management and strategy.

These are the first major appointments after Ravneet Gill became managing director and chief executive officer in the fourth quarter of FY19. Uberoi and Adlakha will report to Gill. The bank has reiterated its financial position is sound and its liquidity and operating performance continue to be robust.The bank is being criticised for its stressed asset portfolio and exposure to struggling non-banking financial companies (NBFCs) and real estate.

YES Bank has a considerable exposure to the struggling Anil Ambani Group (ADAG). The bank posted a loss of Rs 1,507 crore in the March quarter on account of a fall in non-interest income and a sharp increase in provisioning for bad loans.  It has sub-standard assets of around Rs 20,000 crore. Of those, some worth Rs 10,000 crore can turn non-performing. Gill has said so far there have been no slippages. However, the bank has made a 20 per cent contingency provision, amounting to Rs 2,100 crore, for the Rs 10,000 crore assets, which are on the watch list. The bank is looking to raise $1 billion.

Scotching speculation about high-level exits from its board, the bank in its statement said, “Over the past few weeks, there has been a lot of unfounded speculation about YES Bank’s board and management stability, asset portfolio, growth prospects, among other things. We strongly refute such speculation, which we suspect is a deliberate and malicious attempt to create instability in the institution by undermining investor and client confidence. We have apprised the authorities of these developments.” There have been a number of exits from its board in the past few months. Mukesh Sabharwal, who was non-executive independent director of the bank, and Ajai Kumar, non-executive director of the bank, were the latest exits from the board just before the annual general meeting. Both of them cited personal reasons for their leaving. Earlier, there were high-level exits including those of Pralay Mondal, R Chandrashekhar, and Vasant Gujarathi.

The Reserve Bank of India (RBI) in May appointed former deputy governor R Gandhi to the board as additional director with a two-year term. It was speculated that the RBI’s move to appoint Gandhi was primarily because the regulator had apprehensions about the functioning of the bank. The board is supposed to meet on July 17 to consider and approve the audited financial results for Q1 FY20. The private lender’s share closed higher with its clarification. The shares closed at Rs 93.10, up 5.56 per cent, on the BSE.

The Business Standard reported

ET: Gujarat cancels Dahej port contract given to absconding Sandesara brothers of Sterling group

8 July 2019: The Gujarat government Monday canceled all permissions granted to the bankrupt Sterling group promoted by the absconding Sandesara brothers to develop an all-weather port in Dahej.

The absconding promoters of the Sterling group– Nitin and Chetan Sandesara–are alleged to have defrauded over Rs 14,500 crore of public money. Two of their flagships–Sterling Biotech and Sterling SEZ are in bankruptcy tribunals now.

Both the bothers are absconding since their names came up in the bank loan scam and money laundering activities and federal agencies began probing them.

“Chief minister Vijay Rupani today decided to cancel all the permissions given for building an all-weather berthing port at Dahej to Sterling Ports of Nitin Sandesara,” the chief minister’s office said in a statement Monday.

“Rupani has also directed the Gujarat Maritime Board to recover the amount that the company had to pay as bank guarantees and also to take re-possession of the 84.95 hectares given to the company for developing the port,” the statement added.

The Gujarat Maritime Board and a consortium led by Sterling Biotech had entered into an agreement to develop the Dahej port as an all-weather direct berthing port in 2009. Following this, the board had handed over 84.95 hectares to the group in 2010.

The Sterling consortium had formed a new company– Sterling Port-to develop the port and had also signed a concession agreement in 2014 with the board.

As per the agreement, the company was to invest Rs 2,500 crore in the first phase and had to deposit 1.5 percent of the equity along with another Rs 5 crore as performance guarantee with the maritime board.

But the company is yet to start any work on the port, government officials said, adding it even failed to deposit Rs 37.50 crore which it had to pay as bank guarantee to the government.

Earlier in the day, the board of directors of the maritime board met and recommended to cancel the contract, they said, adding following this, the chief minister ordered cancellation of all the agreements and permissions given to the Sandesara group.

The Sandesaras brothers are alleged to have committed bank frauds to the tune of Rs 14,500 crore of the one by Sterling Biotech alone is around Rs 8,100 crore, according to the Enforcement Directorate. The brothers have been absconding since the federal agency CBI registered a bank fraud case against them in 2017.

The Economic Times reported

ET: Lenders, Ruias plan to move SC on NCLAT Essar order

8 July 2019: The latest ruling by the bankruptcy appellate tribunal in the Essar Steel resolution case may not mark the end of the long-drawn legal tussle. Bankers and the Ruias plan to appeal against the decision by the National Company Law Appellate Tribunal (NCLAT) in the Supreme Court, said the people aware of the matter.

The lenders are unhappy with the tribunal ruling that operational creditors should be treated at par with financial creditors at the time of settling claims. The Ruias, the original promoters of Essar Steel, have been trying to regain control of the asset, so appealing against the NCLAT decision that went in favour of ArcelorMittal’s bid is the next logical move.

Bankers told ET they had no option but to move the Supreme Court as the NCLAT order slashes their recoveries to Rs 30,000 crore or 60 per cent of the overall claims against 89 per cent earlier. More importantly, the order undermines the essence of the Insolvency and Bankruptcy Code (IBC), which gives financial creditors a superior claim in the recovery process, they said.

“We are filing an appeal next week because this order has ramifications beyond the Essar case,” said one of the bankers. “Financial creditors are treated as secured creditors according to the code but this order, by giving even operational creditors an equal share, has destroyed this distinction. If secured creditors are treated like operational creditors, then we might as well give loans at 16 per cent to 18 per cent per annum without any security.”

On July 4, the appellate tribunal held that the committee of creditors (CoC) had “no role to play in the matter of distribution of amount among the creditors, including the ‘financial creditors’ or the ‘operational creditors.” Essar Steel owes a total Rs 69,192 crore to financial and operational creditors. As per the NCLAT decision, financial creditors will get 60.7 per cent of their dues, while operational creditors with claims over Rs 1 crore will get 59.6 per cent. Creditors with claims of up to Rs 1crore will be paid in full.

“The NCLAT has relied on its recent decision in Binani Industries Ltd while passing the order. The judgement of Binani Industries was also appealed before the Supreme Court and it was upheld. What remains to be seen is whether the SC would take a different view given the unique facts of Essar Steel,” said Ashish K Singh, managing partner of law firm Capstone Legal. “Any detailed decision by the SC on this important matter would set the precedent for many pending cases. Moreover, it would help financial institutions manage their risk at the time of lending as well.”

As part of the resolution plan, ArcelorMittal will also infuse another Rs 8,000 crore of working capital in Essar Steel. The earlier plan approved by the committee of creditors (CoC) had provided for 89 per cent recovery for all financial creditors and around 20.5 per cent for operational creditors with dues of more than Rs 1 crore.

The NCLAT held that the CoC could only look at the viability of a resolution plan and not the distribution of the amount. It also said CoCs were not allowed to form subcommittees to negotiate with resolution applicants.

The Economic Times reported

MC: Cox & Kings’ promoters willing to divest majority stake to raise capital

8 July 2019: Promoters of travel firm Cox & Kings, which defaulted twice last month on its commercial papers, have reached out to potential investors to divest stake and raise capital.

Sources told Moneycontrol that the promoters are willing to divest majority stake as they look to correct the cash flow mismatch that had led to the defaults. The two defaults amounted to Rs 200 crore in total.

The company has appointed Axis Capital as its merchant banker.

“The promoters are looking to divest stakes in some of the units, or could sell one or more of their products. While these are initial days, the company has received interest from some of the biggest names in the private equity space,” an executive said.

Promoters, consisting of the Kerkar family, hold 49.8 percent stake in the company. Peter Kerkar is CEO.

One of the units where the promoters could dilute stake is Cox & Kings Global Services: the visa processing arm. Sources said the company could also look to divest its India and international leisure business and also the corporate travel vertical.

The India leisure business includes outbound travel and also the MICE (Meetings, incentives, conferencing, exhibitions) segment.

A well-known brand in the travel space, Cox & Kings has a widespread network across the country, which includes its franchisees, offices and general sales agents.

“The company has a temporary cash flow problem. But getting investors shouldn’t be a problem given its legacy,” said the executive cited above.

When contacted, the company refused to comment.

The defaults

Cox & Kings first defaulted on a payment of Rs 150 crore on June 27. A day later, it defaulted on a payment of Rs 65 crore, of which Rs 15 crore was paid.

The defaults were followed by a series of downgrades by rating agencies. After the second default too, Brickworks and CARE Ratings downgraded several of the company’s instruments.

In a statement to the bourses late on July 2, it accepted that the working capital situation was “stretched in the last few months and was further impacted due to its inability to replace the short-term loans with long term loans/regular working capital lines.”

It added that it is taking “all required measures to resolve the temporary cash flow mismatch,” and will be “approaching its lenders to work out some time bound program to meet this emergency.”

It is yet not known how much the company plans to raise through the stake sale. Neither has a deadline been set, the executive stated.

As reported on Moneycontrol