LL: NCLAT Dismisses Government’s Plea For Recovery From Videocon Industries During Moratorium

31 August 2019: The NCLAT has dismissed an appeal against Videocon Industries Limited, by the Ministry of Petroleum & Natural Gas, for recovery of over Rs. 2250 crores as unpaid share of ‘profit petroleum’.

Insolvency proceedings were initiated against Videocon by a group of lenders led by the State Bank of India on a default in payment of outstanding dues of over Rs. 20,000 crores, after NCLT Mumbai admitted the petition on 6th June, 2018.

The issue in this case arose from a production sharing contracts (PSCs) signed between the Government and four companies viz. Videocon, Vedanta and Ravva Oil (Singapore) Pte. Ltd. (“ROS”), for the exploration and development of oil fields. The oil extracting companies recover their capital and operational expenditures, from produced oil, known as “cost oil” and the remaining oil forms part of the ‘profit petroleum’.

During the pendency of Corporate Insolvency Resolution Process (CIRP), the petroleum ministry sent a demand notice to Videocon on 22nd October 2018 demanding allocation of sale proceeds from the PSC, towards the unpaid Government share of ‘Profit Petroleum’.

The ‘Resolution Professional’ (RP) of Videocon filed an Application under Section 60(5) of the ‘Insolvency and Bankruptcy Code, 2016 (‘I&B Code’) before the NCLT, Mumbai, on the ground that during the period of Moratorium, the ‘Corporate Debtor’ (Videocon) cannot be asked to part away with any amount including the share of profit.

The dispute between the Government and Videocon arose in August, 2002 which was referred to the ‘International Arbitration Tribunal’, and the pleas of Videocon were partially upheld. Thereafter, the Government filed an appeal before the High Court of Kuala Lumpur, Malaysia and the Federal Court of Malaysia, but the appeals were dismissed on the ground of jurisdiction.

NCLT, Mumbai after taking all the aforesaid facts into consideration, allowed the prayer of the RP and directed the Government authority not to press the Demand Notice. The Tribunal also restrained Mangalore Refinery and Petrochemicals, GAIL (India), and Bharat Petroleum Corporation from remitting any amount to the Centre, due to be given to Videocon. The Bench at Mumbai clarified said that the petroleum ministry could lodge its claim of any legally enforceable right or recovery with the RP.

It was against this order by NCLT, Mumbai that the petroleum ministry approached the NCLAT by way of an appeal.

It was the contention of the petroleum ministry that since the petroleum was the property of the Government and ‘profit petroleum’ of public property, the Government was entitled to claim its share of profit on the petroleum product.

The petroleum ministry also claimed that the Demand Notice dated 22nd October, 2018 cannot be categorised as ‘recovery’ as the ‘profit petroleum’ falls under the Government’s share.

The NCLAT, after perusal of the facts, agreed with the view taken by NCLT, Mumbai that during the period of ‘Moratorium’ under section 14 of the I&B Code, the Government could neither recover any amount nor issue demand notice to the Videocon through its Resolution Professional.

In terms of the provisions of section 14 of the I&B Code, the Appellate Bench, dismissed the Government’s appeal claiming share in the profit petroleum.

As reported by LiveLaw

FE: Hope for Jet Airways: Synergy group looks to invest up to Rs 3,000 cr in airline

30 August 2019: Synergy Group, a South American entity, which holds a significant stake in Columbian Avianca Airlines, is willing to invest up to Rs 3,000 crore in the grounded Jet Airways. The investment is conditional on the lenders of the airline taking a large debt haircut, Antonio Guizzetti, one of the advisors to Synergy Aerospace said.

German Efromovich, the owner of the Synergy Group, will meet the State Bank of India within the next two weeks to present a business plan. “Jet Airways is a good company, but it is grounded, which is very difficult to rehabilitate. Our desire is to negotiate with the banks for conversion of debt to equity,” Guizzetti said.

Financial creditors have claims worth over Rs 8,200 crore due with Jet Airways. Efromovich had in 2004 bought a bankrupt Avianca. The airline has since grown to become Latin America’s second largest. The Synergy Group is looking for an Indian co-investor, and it has engaged legal experts to see whether the entity can own more than 49% stake in Jet Airways.

“How much stake Synergy Group can pick up is under discussion with our lawyer, because the 49% limitation in foreign ownership is applicable for an airline operator. But the investment into Jet Airways will be done by Synergy Aerospace as a foreign entity,” Guizzetti said.

As per the Indian foreign direct investment (FDI) regulations, a foreign airline can directly invest up to 49% in a scheduled Indian carrier. “However, the rule applies only to those entities which directly own an airline. If the foreign entity is an investment arm, private equity, fund, bank, or an industry conglomerate, FDI can go up to 74%, which is the maximum permissible investment that can be held by a foreign investor provided it is explicitly not an airline. If Synergy group invests in Jet Airways, they would have to disclose where the money they invest is coming from,” Mark D Martin, CEO, Martin Consulting, said

Lenders are currently evaluating the group’s credentials. “These are very early days. It is hard to tell whether lenders will entertain Synergy Group’s proposal. The owner had some solvency issues in the recent past. Lenders will meet Efromovich in person and see how to take things forward,” a person involved in the proceedings said.

Earlier this year, Efromovich was reportedly removed from the board of Avianca Holdings for a loan breach. The Bolivia-born entrepreneur offered up to his 51.5% stake in Avianca as collateral on a $456-million loan from United Continental Holdings, the parent company of American carrier United Airlines. He eventually defaulted on the loan, putting Avianca’s future at risk.

Efromovich has since put in an offer for Italian carrier Alitalia, which was rejected. He has been looking to invest in India, either in Air India or Jet Airways. If the deal goes through, the Synergy Group to revive Jet as an international low-cost carrier. The group plans to inject significant working capital as well as new capital investment to expand Jet’s fleet, Guizzetti said. Efromovich declined to comment in an email response to FE.

Jet Airways has been grounded since April 17 after lenders refused to extend emergency funding to the airline to continue with its operations. The slots assigned to Jet have since been reallocated to other airlines. On June 20, the National Company Law Tribunal admitted the airline for insolvency proceedings. According to the company’s website, creditors have filed claims worth over Rs 30,000 crore, of which claims of over Rs 12,000 crore have been admitted so far.

The Financial Express reported

ET: NCLT directs insolvency proceedings against realty firm Three C Projects

29 August 2019: The National Company Law Tribunal (NCLT) has ordered start of insolvency proceedings against NCR-based realty firm Three C Projects Ltd and also appointed an Interim Resolution Professional (IRP) to take over the management of the debt-ridden company. A two-member principal bench, headed by President Justice M M Kumar, admitted a plea filed by five flat buyers who had booked homes in the company’s Lotus Zing project in Noida, Uttar Pradesh.

“We are satisfied that a default has occurred and the applications under sub section 2 of section 7 (of IBC) is complete,” said NCLT.

“As a sequel… this petition is admitted and Manish Kumar Gupta is appointed as the Interim Resolution Professional,” it added.

NCLT also directed the ex-management of Three C Projects to “provide all documents in their possession and furnish every information in their knowledge” within a period of one week to the IRP.

The tribunal declared a moratorium, protecting the company from the lenders by prohibiting them from recovering their dues for a certain period.

The NCLT order came on a petition filed by flat buyers of the company for its project Lotus Zing, through their counsel Aditya Parolia, Partner, PSP Legal.

Flat buyers, who are now treated as financial creditors after recent amendments in the Insolvency and Bankruptcy Code (IBC), had paid money to the realty firm as per their construction-linked payment plans on various dates.

According to the buyer agreements, the flats were to be delivered in 33 months in the year 2014.

Three C Projects submitted that the petition against it was not maintainable and that the project was delayed due to various factors, including demonetisation, order from NGT and farmers’ unrest.

However, NCLT rejected the builder’s argument, saying that “submission made by the respondents (Three C Projects) is whole unsustainable.”

According to the tribunal, objections like water supply interruptions and farmers agitation “are merely lame excuses to deny the claim of the financial creditors.”

“The maximum period of 33 months has already expired either in 2013 or early 2014. The possession as per stipulation has not been handed over till date,” the tribunal observed.

NCLT said while there was some delay due to reasons specified in the clauses of the buyer agreements, home buyers could not be expected to wait till eternity.

“The clause cannot be given a literal meaning to mean that till eternity the corporate debtor would defer possession and the financial creditors are bound to wait.

“A reasonable construction of any such clause would be to grant maximum period of one year. Even then, the possession should have been delivered in 2015,” it said.

The Economic Times reported

ET: Lenders likely to put bad loans worth Rs 8,000 crore on the block

29 August 2019: About Rs 8,000-crore worth of stressed loans, mainly from the power and manufacturing industries, are likely to be put up for sale by lenders seeking quicker recoveries — both within and outside the dedicated bankruptcy-resolution framework.

Lenders including United Bank of India, Bank of Baroda, Axis Bank, Indian Overseas Bank, Bank of Maharashtra, and Karur Vysya Bank are likely to offer loans for sale to distressed funds or asset reconstruction companies (ARCs) in the next few days, three people familiar with the matter said. A large housing finance company will also put up some of its sour loans to builders for sale.

United Bank of India has, perhaps, put up the largest chunk on the block. A total of 42 accounts with an outstanding of Rs 2,182.2 crore have been offered. The bank has invited bids from asset reconstruction companies, banks, and financial institutions. Other lenders may be looking at anything between Rs 500 crore and Rs 1,500 crore each.

“Banks can put assets for sale but the price they want should match what is offered by funds and ARCs. Banks are looking for cash settlement, but the price they expect is still higher than what funds are offering, which means deals are few and far between,” said P Rudran, former CEO at Arcil.

Other loans on sale may include those to Jindal India Thermal Power and KSK Mahanandi. Indian Overseas Bank may offer Vadraj Cement for sale, people associated with the process told ET.

Axis Bank declined to comment on the matter. Other banks did not reply to ET’s mailed queries.

“Lenders may have to take at least 50% haircut as investors are unlikely to settle for anything less,” said an executive involved in the processes. Tough negotiations are expected, with lenders seeking to get rid of sticky assets.

United Bank of India and Bank of Baroda have either called for tenders, or will soon do so.

Earlier, too, some state-owned banks, including the State Bank of India, tried to sell bad loans. The banks received very few bids, which were not remunerative.

“Some private sector lenders are in one-on-talks with distressed funds as they are negotiating private deals to sell off bad loans,” said another person, adding that retail loans are not being offered.

Bankruptcy cases are taking rather long to get resolved. About 34% of the 1,292 cases in the bankruptcy courts up to June 2019 are delayed beyond 270 days, up from 26% a year ago, and 31% in the quarter ended March, ET reported on August 16.

The Economic Times reported

FE: Changes in liquidation process under IBC not retrospective: IBBI

29 August 2019: The Insolvency and Bankruptcy Board of India (IBBI) has clarified that the recent amendments to the norms on the liquidation process under the Insolvency and Bankruptcy Code (IBC) will be applicable to those cases that commenced on or after July 25, which is when the amendments came into effect. The IBBI’s clarification comes after stakeholders expressed difficulty in applying the amendment regulations to a liquidation process which commenced before July 25.

As reported earlier by FE, the amendments to the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations stipulated that the liquidation process of any corporate debtor under IBC will have to be completed within a year of its commencement.

Further, the amendments called for financial creditors to contribute towards the liquidation cost in case the corporate debtor does not have adequate liquid resources to complete liquidation. In instances where the committee of creditors hasn’t approved a plan on such contribution during the corporate insolvency resolution process, financial creditors would have to contribute in proportion to the financial debts owed to them by the corporate debtor.

Such contributions, along with interest at bank rate thereon will form part of liquidation cost, which is to be paid in priority. The amendments also delved into specifics of process over the sale of corporate debtor as a going concern under liquidation, where the process ‘shall be closed without dissolution of the corporate debtor’.

“In the ongoing cases, implementing the amended liquidation regulations were becoming a challenge for the stakeholders. For instance, in a case where more than a year is gone in the liquidation process and the process is not yet over, the timeline of completion of the process within a year is not possible for all the stakeholders,” Ashish Pyasi, associate partner with Dhir and Dhir Associates, said.

“Similarly, cases where the liquidation process has started and 90 days are over, completion of scheme of arrangement as per the revised timeline was not possible,” he added. Listing other instances  of challenges faced by stakeholders, Pyasi said in the liquidation process where assets have been already sold, constitution of a stakeholders’ consultation committee to advise the liquidator would be a futile exercise. Cases where the creditors have filed their claim in liquidation but haven’t decided about relinquishing their security, applying these regulations retrospectively was becoming difficult, he added.

The Financial Express reported

MC: NCLAT asks Raheja Developers to settle dispute with financial creditors

28 August 2019: The National Company Law Appellate Tribunal (NCLAT) has asked realty firm Raheja Developers to settle its dispute with homebuyers, after the company challenged the NCLT’s order to initiate insolvency proceedings against it.

A three-member NCLAT bench, headed by Chairperson S J Mukhopadhaya, directed the interim resolution professional (IRP) appointed by the National Company Law Tribunal (NCLT) not to issue any public notice and also not to constitute a committee of creditors.

The NCLAT directed to list the appeal filed by the realty firm on September 3, 2019, for orders.

The appellate tribunal’s direction came over a petition filed by Raheja Developers challenging the order of NCLT that directed to initiate insolvency proceedings on a petition filed by flat buyers.

Homebuyers are now considered as financial creditors under the Insolvency and Bankruptcy Code.

Last week, a two-member principal bench of the NCLT, headed by President M M Kumar, ordered start of insolvency proceedings and appointed an IRP to take over the management of the company.

The tribunal had said “a default has occurred” by Raheja Developers in giving possession of apartments, and rejected the contention of the realty firm that the delay was caused because of lack of infrastructure in the area to be provided by the state government authorities.

The NCLT’s order came over a petition filed by a flat buyer of Raheja Developers.

The petitioner had booked an apartment in the residential project Raheja Sampada developed by the corporate debtor (Raheja Developers).

Raheja Developers had issued a joint allotment letter on August 3, 2012, and executed a flat buyer’s agreement. According to the agreement, possession was to be delivered within 36 months, which was not fulfilled.

The buyers had made a payment of Rs 86.62 lakh to the company on various dates and sought a refund along with 18 per cent interest rate, claiming default after possession was not handed over within the stipulated time frame.

The NCLT observed that the 36-month period came to an end on August 3, 2015, and construction was not complete.

Raheja Developers had contended that there was no default from its part as the handing of possession was subject to provisioning of the infrastructure by the government in the area and it has received the occupation certificate in 2016.

According to the realty firm, till date, water and sewer pipelines have not been provided.

“The vague arguments made by the corporate debtor-respondent hardly need to be noticed. The other objections are also lame excuses to deny the claim of the financial creditor,” the NCLT had said.

Moneycontrol reported

LM: Moody’s downgrades Yes Bank rating; outlook negative

28 August 2019: Global rating agency Moody’s Investors Service on Wednesday downgraded YES Bank’s long-term foreign-currency issuer rating, citing lower than expected amount of capital raised and a sharp fall in its stock price which “will challenge its ability to raise sufficient capital to maintain the rating at its previous level.”

Moody’s downgraded YES Bank’s foreign currency issuer rating to Ba3 from Ba1, long term foreign and local currency bank deposit ratings to Ba3 from Ba1, foreign currency senior unsecured MTN program rating to (P)Ba3 from (P)Ba1, and Baseline Credit Assessment (BCA) and adjusted BCA to b1 from ba2.

It said the outlook on the bank’s ratings, where applicable, was negative. The negative outlook primarily reflects the risk of further deterioration in the bank’s solvency, funding or liquidity, as the bank continues to work through asset quality issues and rebuilds its loss absorbing buffers

In August, the lender has raised around $270 million via qualified institutional placement, and plans to raise $600 million more from large investors to bolster its capital buffers. The board will meet on 30 August to mull raising funds via equities.

YES Bank stock has declined over 85% so far in 2019 due to asset quality concerns. At 3.10 pm, the scrip traded at ₹59.30 on BSE, down 7.8% from its previous close.

Following the downgrade, private lender’s 3.75% USD notes, due February 2023, fell 3.1 cents on the dollar to 86.4 cents as of 05:07 pm in Hong Kong, set for the biggest decline since 28 November, according to prices compiled by Bloomberg.

Moody’s also expects the bulk of YES Bank’s operating profits to get consumed by loan loss provisions over the next 12-18 months, and thus will be unable to support internal capital generation. “This will leave the bank dependent on external capital raising to improve its loss-absorbing buffers, which in Moody’s opinion is becoming more challenging given the substantial decline in its share price.”

It noted that YES Bank’s asset quality deteriorated in the June quarter, with gross non performing loan ration rising to 5% from 3.2% a quarter ago. Around ₹10,000 crore of loans or 4% of its total loans remain on a watchlist – meaning that these watchlist loans may turn into non-performing assets over the next 2-3 quarters. In addition, around ₹7,500 crore of bond investments or 10% of its total investment holdings have experienced rating downgrades in the past quarters.

Though the bank’s funding and liquidity profile has remained broadly stable, it compares weakly to other rated private sector peers in India.

Moody’s has maintained a negative adjustment for corporate behavior in YES Bank’s BCA, which results in a one-notch negative adjustment to the bank’s BCA when compared to its financial profile.

The LiveMint reported

ET: RBI’s ‘undeclared’ NBFC review akin to banks’

28 August 2019: Reserve Bank of India (RBI) Governor Shaktikanta Das may have ruled out an Asset Quality Review for NBFCs, but an ongoing central bank inspection of the books of non-bank companies shows that the exercise is as stringent as the official scrutiny that had earlier pushed high-street lenders to declare higher bad loans.

The RBI engagement is so intense that even some of auditor-accepted practices of bad loans are given a go by and inspectors are insisting on classifying even good loans as bad, said sources. RBI has increased the scrutiny on NBFCs exposures, quality of assets and asset-liability mismatches (ALM). NBFCs have faced tough liquidity conditions due to an increase in funding costs and difficulties in market access.

The Asset Quality Review of the RBI had opened a can of worms for banks. It ended the practice of banks and businesses sugar-coating bad practices as social necessity. Since 2014-15, NBFCs have expanded credit rapidly when banks were battling bad loans. They benefitted from easy liquidity. “Today audit is more detailed than in the past,” said Umesh Revankar, CEO, Shriram Transport Finance. “Earlier, they were looking at credit quality… now they are looking more indepth. RBI is asking for top 50-100 assets that have gone bad. It gets into the details, including deviations.”

Asset classification has been brought on a par with banks, and asset quality has deteriorated over the past financial year. Gross NPAs of the NBFC sector as a percentage of total advances have increased from 5.8 per cent in 2017-18 to 6.6 per cent in 2018-19.

“RBI never looked at the ALM root cause until the DHFL crisis, and it started asking for the ALM report frequently,” said the CEO of an NBFC.

The Economic Times reported

ET: Credit Suisse warns of a new wave of bad loans

28 August 2018: Fears of a bad loan spike in the banking sector have returned with a likely surge in defaults in NBFCs and lower-rated companies, amid tight credit conditions. Debt of Rs 2.4 lakh crore is currently being put through the central bank’s June 7 framework to resolve stressed assets but what is worrying analysts is that at least 70 per cent of this is chronically stressed and could lead to another wave of bad loans.

Bank NPAs declined from 11.7 per cent in March 2018 to 9.6 per cent in the first quarter of the current fiscal year. But a Credit Suisse analysis sees stressed loans again exceeding 12 per cent as 2.8 per cent of bank loans are likely to see fresh wave of inter-creditor agreements (ICA) being signed. “ICAs reflect (a) second wave of stress. It is the only restructuring framework available to banks. Debt of Rs 2.4 lakh crore across 16 stressed corporates is being put through this, partly as IBC (Insolvency and Bankruptcy Code) outcomes have also slowed,” said Ashish Gupta, a research analyst at Credit Suisse. “Of the current ICAs, 50 per cent is related to financials, while 70 per cent of non-NBFC debt under ICA is chronically stressed which was earlier under CDR, SDR and S4A (various debtresolution frameworks).”

According to a report by Credit Suisse, the share of debt with companies having an interest coverage ratio of less than 1 was 42 per cent at the end of the June quarter. Interest coverage ratio is a measure of a company’s ability to make interest payments through its earnings. The Indian economy grew at its slowest pace in five years in the last quarter of fiscal 2019, reflecting the stress faced by businesses. Consumption is hit with non-bank lenders’ loan growth slipping into the negative territory — credit outstanding shrank nearly 2 per cent in the quarter ended June 30.

Credit profiles of companies also worsened to a 19-month low in July, according to a CARE Ratings index that tracks 1,601local firms.

“(The) debt quality index fell sharply in June 2019, mainly due to moderation in the liquidity scenario for NBFCs and HFCs (housing finance companies) resulting in sharp rating migration, and declined further in July,” the ratings firm said in a report.

The Economic Times reported

BQ: Leaked Video of Chairman’s ‘Bankrupt’ Flub Sends Avianca to Record Low

27 August 2019: Avianca Holdings SA plunged to a record low after the Colombia-based airline’s chairman was seen in a leaked internal video telling employees that the company is “bankrupt.”

The stock dropped as much as 15% in Bogota trading before paring losses. Kriete was trying to reiterate to employees the urgency of getting back to profitability, said Carlos Enrique Rodriguez, head of equity research at Bogota-based brokerage Ultraserfinco. Instead, his comments wiped out more than $40 million of market capitalization, as the video surfaced on social media after markets closed yesterday.

The company quickly tried to qualify the statement, taken from a video in which Chairman Roberto Kriete is seated aside CEO Anko van der Werff at a company meeting, saying his message was taken out of context.

Kriete “used the colloquial term ‘bankrupt’”, though the company is not in any bankruptcy or insolvency process, the airline said.

A new management team, led by Kriete, who took over as chairman in May following a corporate shakeup, is attempting to turnaround the money-losing airline by cutting unprofitable routes, selling some assets and reducing debt.

The Bloomberg Quint reported