LM: Icra cuts rating on Yes Bank’s bonds worth ₹32,911.7 crore

24 July 2019: Credit rating agency Icra Ltd on Wednesday downgraded ratings on Yes Bank’s ₹32,911.7 crore bond programme, citing an increase in stressed assets and lack of debt resolutions. The rating on bonds aggregating ₹22,111.7 crore were downgraded by one notch, while that on ₹10,800 crore of additional tier I (AT-I) bonds were downgraded by two notches.

The outlook on the ratings remained negative as Yes Bank saw a sizeable increase in gross bad loans and BB and below rated exposures along with weakened capital cushions, Icra said.

The rating for these AT-I bonds (BBB+) is three notches lower than the rating for the Basel III compliant tier II bonds (A+) of Yes Bank as these instruments have loss-absorption features that make them riskier, said the credit rating agency. The coupon payments are non-cumulative and discretionary and the bank has full discretion at all times to the cancel the coupon payments.

“The cancellation of discretionary payments shall not be an event of default. Coupons can be paid out of the current year’s profits. However, if the current year’s profit is not sufficient or if the payment of the coupon is likely to result in a loss, the coupon payment can be made through reserves and surpluses created through the appropriation of profits, (including statutory reserves),” it said.

The coupon payment is subject to the bank meeting the minimum regulatory requirements for common equity tier I (CET-I), tier I and total capital ratios (including capital conservation buffer, at all times as prescribed by the Reserve Bank of India (RBI), Icra said.

“These AT-I bonds are expected to absorb losses through a write-down mechanism at the objective pre-specified trigger point fixed at the bank’s CET-I ratio as prescribed by the RBI, 5.5% till March 2020, and thereafter 6.125% of the total risk-weighted assets of the bank or when the point of non-viability trigger is breached in the RBI’s opinion,” it said.

The rating downgrades, Icra said, also factor in the further weakening in Yes Bank’s core equity (CET-I) capital cushions with the growth in RWAs and elevated provisioning leading to subdued profitability. The CET-I declined to 8% as on 30 June 2019 against the minimum regulatory requirement of 7.375% for 31 March 2019 and 8% for 31 March 2020.

“Hence, the bank would need to raise capital on an immediate basis. While the board has approved a capital raise of $1 billion, Yes Bank’s ability to raise capital considering its recent performance and earnings guidance remains to be seen. The bank will also need to accelerate the resolution and recovery from stressed exposures and will also need to calibrate growth to restore the capital cushion,” it said.

Icra said it has taken note of the stability in the bank’s overall deposits base, though the current account and savings account deposits declined in Q1FY20, while term deposits witnessed a growth, perhaps a negative for the cost of funds and earnings.

“The management guided towards an increase in the share of granular retail and small and medium enterprise assets to around 50% over the medium to long term from the existing level of 36.1%, though the same will remain dependent on the bank’s ability to raise growth capital,” Icra said.

The ratings continue to factor in the private lender’s position as the fourth largest private sector bank, in terms of total assets, its satisfactory operating profitability and wide branch network, Icra said.

The LiveMint reported

MC: SBI moves intervention plea against HDFC claim on Jet Airways’ BKC property

24 July 2019: State Bank of India, the lead lender to the bankrupt Jet Airways, on July 24 moved an intervention application against mortgage lender HDFC’s plea claiming rights over a portion of the airline’s BKC property.

The National Company Law of Tribunal (NCLT) adjourned the matter for August 8.

On July 4, the mortgage lender HDFC had moved the NCLT seeking to keep the airline’s BKC property out of the bankruptcy process saying three floors of the BKC property are mortgaged with it as collateral for over Rs 400 crore loan.

Meanwhile, the tribunal approved Ashish Chhawchharia of Grant Thornton as the resolution professional for Jet Airways which stopped flying since April 17.

Chhawchharia, who got 81 percent votes of the committee of creditors, was the interim RP since June 20, when the airline was admitted for insolvency.

The liabilities and debt of the airline are over Rs 36,000 crore.

On July 18, the RP had said he received claims worth Rs 24,887 crore in 16,643 claims, including Rs 8,462 crore by financial creditors, against the company as of July 4.

Significantly, he rejected a claim of Rs 229 crore from JetAir, the privately held company of founder Naresh Goyal, which was the general sales agent of Jet Airways and the holding company the Goyals’s stake in the airline.

The lenders, who control 50 percent ownership of the airline, after failing to get a buyer, was forced to sent it for bankruptcy on June 17, and on the 20th of the month the Mumbai NCLT admitted the plea.

Last Saturday, the lenders in renewed bid to sell the remaining assets invited expression of interest from interested parties with a deadline of August 3.

Financial creditors, who also include banks, have made 37 claims worth Rs 10,231 crore as of July 4, he said. The list of financial creditors, whose claims have been admitted include 14 domestic banks and financial institutions, 12 foreign banks and eight lessors, the RP said.

State Bank has made a claim of Rs 1,644 crore, including cash credit inclusive of interest, term loans and bank guarantees issued but not invoked, it said, adding its claims worth Rs 19 crore were rejected. Private sector lender Yes Bank has claimed Rs 1,084 crore, followed by PNB’s Rs 963 crore and IDBI Bank’s Rs 594 crore.

Operational creditors excluding workmen and employees have made a claim of Rs 12,372 crore, with the entire amount being under verification, while the workmen and employees have made a claim of Rs 443 crore which is also under verification, Chhawchharia said.

Apart from this, authorised representatives of workmen and employees have made 11,965 claims of Rs 735 crore, he said, adding other creditors, including other financial creditors and operational creditors, have made 121 claims amounting to Rs 1,105 crore.

Moneycontrol reported

ET: Ind-Ra downgrades IDBI Bank’s rating outlook to negative

24 July 2019: India Ratings and Research (Ind-Ra) has revised IDBI’s long-term issuer rating at IND A and short-term issuer rating at IND A1 besides changing the rating outlook from ‘rating watch negative’ to ‘negative.’

The action comes a few days after the Enforcement Directorate conducted searches in connection with a Rs 743 crore IDBI Bank fraud where an accused created ghost projects in Andhra Pradesh and Telangana to siphon off the loan amount.

Ind-Ra said the negative outlook reflects its expectation that the bank is likely to require sizeable equity infusion over 2020-21. While LIC has articulated its commitment to the same, the quantum and timing are not known at present.

“The outlook also reflects the continued pressure on the bank’s franchise and its inability to materially grow its asset book, which could result in its operating buffers facing recovery challenges,” said the rating agency.

In addition, the negative outlook factors in Ind-Ra’s expectation that IDBI will continue to grapple under the Reserve Bank of India’s prompt corrective action framework (which will continue to weigh on its share of systemic assets and liabilities) and credit costs over corporate accounts in spite of a high coverage ratio.

“Its gross non-performing assets are among the highest in its peer group (27.47 per cent at end-FY19). There has been a weakening in IDBI’s standalone franchise, a continued fall in its share of systemic assets and liabilities, and a sharp deterioration in its asset quality. These three factors are likely to persist at least until the resolution of asset quality issues and the stabilisation of capital buffers,” said Ind-Ra.

“These concerns could ease out over medium-term if the expected strategy with LIC plays out and the franchise starts gaining market share,” it added.

The Economic Times reported

FE: Domestic real estate fund: Piramal Fund seeks an extension from investors

24 July 2019: Piramal Fund Management has sought an extension of one year from investors in its domestic real estate fund, called Indiareit Fund Scheme V, as it is finding hard to exit some of the investments it has made in developments in Tier I cities.

The Indiareit Fund Scheme V was launched in 2013 with a primary tenure of six years, extendable by up to two additional one-year periods. The primary tenure of the fund ends on July 31, 2019. The fund had made 10 investments and has till date fully exited from four of them — with partial exit from one. The total distribution made by the fund is around 55% of the fund corpus, which includes 35% towards return of capital and 20% towards return on capital.

The amount raised was Rs 1,000 crore and from that the fund has so far managed to return only 35% of the capital to investors and investors have generated a return of 20% on this investment. In response to a query, Piramal Fund Management said, “Piramal Fund Management remains committed to deliver improved performance and consistently create long-term value for its stakeholders.”

The real estate market has been facing a sharp slowdown in demand, coupled with a large build-up of inventory. The current inventory is nearly three years of stock across markets. The liquidity crisis has clearly hit the developments in which the Indiareit Fund Scheme V has invested. The fund has invested Rs 200 crore in Mumbai’s Siesta & Sommet, Ariisto Group in 2014 for two of its developments in Mulund and Goregaon. Due to weak financial condition of the company, both the projects are on hold currently, awaiting fresh financial closure. In the interim, a non-secured creditor has undertaken proceedings against the company under the Insolvency and Bankruptcy Code.

In some of its other projects, either rules have changed or there is pending litigation over environmental concerns. From Bengaluru to Gurgaon, projects are mired in problems, making an exit rather difficult for the fund.

Commenting on the extension, the company told FE, “Indiareit Fund Scheme V was launched in 2013 with a primary tenure of 6 years, extendable by up to 2 (two) additional one-year periods, by the Trustee, on the advice of the Investment Advisor. This is a standard practice with respect to most close ended fund vehicles with a fixed tenure. The primary tenure of the Fund ends on 31st July 2019 and the investment advisor as per provision under the SEBI guidelines has recommended an annual extension to the Trustees. As per standard corporate policy and as governed by SEBI and in the spirit of transparency, Indiareit Fund V has shared the current status of residual investments with all its investors. The Investment Advisor will continue to manage the residual investments towards their ultimate monetization during the remainder of the extended Fund term.”

The Financial Express reported

FE: NCLT initiates insolvency process against L&T Halol-Shamlaji Tollway

24 July 2019: The Chennai bench of the National Company Law Tribunal (NCLT) has initiated a corporate insolvency resolution process (CIRP) against L&T Halol-Shamlaji Tollway, a special purpose vehicle (SPV) of L&T Infrastructure Development Projects, admitting an application by Oriental Bank of Commerce (OBC) as financial creditor of the beleaguered company.

OBC had disbursed Rs 155 crore in 2009 under a common loan agreement by a consortium of banks and institutions which included Allahabad Bank (as lenders’ representative and escrow bank) and Gujarat State Road Development Corporation (GSRDCL).

The loan account turned NPA in 2016 and the financial creditor, along with other lenders, entered into a master restructuring agreement in 2017 with L&T Halol-Shamlaji Tollway for conversion of debt of Rs 406 crore into equity, out of total debt of Rs 1,000 crore payable to the consortium of banks.

Apart from this, Allahabad Bank wrote a letter to the MD of GSRDCL stating that the revival package will be based on implementation of measures proposed by banks and GSRDCL. The measures include conversion of debt to the tune of Rs 410 crore into equity and GSRDCL, taking share of Rs 210 crore out of the proposed equity, reduction of interest to 10% and extension of repayment based on proposed cash flow, among others.

When the company failed to service the loans taken from various scheduled banks for laying roads, GSRDCL was asked to take equity share of Rs 210 crore. L&T Halol-Shamlaji Tollway had used this ‘move’ to impress upon the banks to go for a master restructuring agreement.

As the company reportedly failed to comply with the concessions mentioned in the master restructuring agreement, OBC had given a recall notice on September 12, 2018, demanding repayment of part-B debt of Rs 78.27 crore within seven days. Since L&T Halol-Shamlaji Tollway failed to repay the loan, OBC moved the NCLT with a plea to initiate CIRP.

Countering this, the counsel for the company submitted that there was no default in making payment in respect of part-B debt, as there cannot be any occasion to OBC to recall the debt on the ground that GSRDCL has not come forward to take equity out of part-A debt.

Further, it stated that OBC decided to file an application with the NCLT as part of their recovery measures, which will act as indirect pressure on the ultimate parent. The counsel argued that Allahabad Bank has already recorded that the company’s account was regular and hence it has to be construed that no default was in existence as against part-B debt payable to OBC.

According to the counsel, even in the event of occurrence of default, OBC on its own cannot initiate proceedings against the company due to clauses in the master restructuring agreement.

Ordering the CIRP, the NCLT bench said it has not been said anywhere in the master restructuring agreement the lenders cannot independently proceed against company.

The bench pointed out that it was an admitted fact the fund of Rs 210 crore had not come from GSRDCL within 90 days of the effective date. As per Clause 7.1 of the restructuring agreement, it has become an additional event of default, entitling the lenders to proceed against the debtor based on the original loan documents.

There being no dispute with regard to availing of loan amount of Rs 155 crore and this account having become NPA in 2016 itself, it could be solely concluded that debt and default are in existence, the bench observed.

The NCLT further said with the company’s failure to bring in equity through GSRDCL as promised, the classification of debt and equity has to be construed as vanished because once any default has occurred, then the entire amount (both part- A and part- B debts) will become one debt by the corporate debtor. Therefore, GSRDCL not infusing into the company will amount to default and it was pertinent to mention that the additional right given to lenders’ agent to proceed against the company on behalf of the banks, cannot be considered as a restriction upon OBC to independently proceed against the corporate debtor, the bench added.

The Financial Express reported

IE: Supreme Court cancels registration of Amrapali group for diverting homebuyers’ money

23 July 2019: The Supreme Court Tuesday cancelled the registration of all Amrapali group of companies under the Real Estate Regulatory Authority and the lease of its properties granted by Noida and Greater Noida authorities. The court also asked the Enforcement Directorate to conduct a detailed investigation against the group for diverting homebuyers’ money.

A bench of the Supreme Court headed by Justice Arun Mishra directed National Buildings Construction Corporation (NBCC) to complete the unfinished housing projects in Noida and Greater Noida and handover these to homebuyers.

The top court said Venkataramani will have the power to enter into any tri-party agreement for sale of the group’s properties to recover the dues. The bench said the home buyers’ money was diverted in violation of the Foreign Exchange Management Act (FEMA) and the foreign direct investment (FDI) norms.

The court has been dealing with a batch of petitions filed by home buyers who are seeking possession of around 42,000 flats, booked in projects of Amrapali Group. The company is responsible for the diversion of home-buyers’ money.

Amrapali faced its first major protest in 2015, when 900 families that had shifted to its Sapphire housing project in Noida complained of lack of utilities like electricity and water. In August 2016, cricketer MS Dhoni quit from his role as brand ambassador, with Sharma calling it a “mutual decision”. But two years later, Dhoni sued the group for Rs 150 crore, claiming he had not been paid for his role.

In September 2017, a bench of the National Company Law Tribunal initiated insolvency proceedings at the behest of Bank of Baroda against Amrapali Infrastructure for dues over Rs 50 crore. Following protest after protest in 2016-17, homebuyers of Amrapali’s Dream Valley project, comprising 11,000 unfinished flats, moved the Supreme Court against the decision, saying their interests wouldn’t be protected if insolvency proceedings are initiated.

In August 2018, the Supreme Court attached properties and accounts of 41 companies under the parent Amrapali Group. A month later, the apex court directed the debts recovery tribunal to begin the process of selling 16 of its properties.

In October 2018, the court sent three Amrapali directors — Sharma, Shiv Priya and Ajay Kumar — to police custody for not furnishing details of the 46 companies. “You are playing hide and seek. You are trying to mislead the court,” the bench said.

The Indian Express reported