BS: Nithia Capital identifies Indian stressed steel assets for acquisition

21 August 2019: Nithia Capital, a UK-based alternative investment manager that specialises in turning around underperforming facilities, has identified around 15 stressed steel assets in India for acquisition.

While Nithia has zeroed in on about 15 assets, it is not planning to acquire all of them. Although they are all stressed assets, not all are in the National Company Law Tribunal (NCLT) for debt resolution. The total enterprise valuation that Nithia is looking at is $1-$1.2 billion as part of its India plan.

The assets are small and based in central and eastern India. “The idea is to create a platform of 3-3.5 million tonne of steel capacity and then grow organically and complete the half-finished capex. In 4-5 years, we plan to exit through an initial public offering or a strategic sale,” said Jai Saraf, founder and CEO.

In India, Nithia has an arrangement with CarVal Investors, founded by Cargill. 

“CarVal is our preferred financial partner. We have to offer all our steel assets to CarVal first for participation. If they don’t join, we can partner with other financial investors,” Saraf said.

The CarVal consortium, of which Nithia is a part, had bid for Uttam Galva Metallics, which was on the RBI’s second list of non-performing assets (NPAs) for debt resolution under the Insolvency and Bankruptcy Code (IBC). 

Lenders had selected the CarVal-led consortium as the preferred bidder, but SSG Capital, the other bidder in the fray, challenged the lenders’ decision in NCLT. “The hearing is over and the matter has been reserved for order,” said Saraf.

If the Uttam bid finally goes in favour of the CarVal consortium, it would be Nithia’s first exposure in India. 

Nithia Capital had also looked at major assets like Essar Steel, Bhushan Steel and Monnet Ispat & Energy before they were put up for debt resolution at the NCLT. However, after major steel players evinced interest, Nithia changed tack and started focusing on smaller assets.

“The big assets were then going through the CDR and SDR mechanism. But neither the banks were keen on taking a haircut nor the promoters wanted to cede control. So it was a frustrating 12-14 months,” said Saraf.

This prompted Nithia to reconfigure its strategy. “We started looking at assets below a million tonne capacity which were not on the radar of big players,” explained Saraf.

The IBC, according to Saraf, is once in a lifetime opportunity to buy assets at a fair value and less than replacement cost. “It is far from perfect, but is evolving very fast,” he said.

The steel industry has been under pressure globally on account of demand worries, but Saraf said that it would not deter Nithia from investing in the sector. “Steel is a cyclical industry,” he pointed out.

The Business Standard reported

FE: UBI: Current DHFL resolution plan best under circumstances

21 August 2019: The resolution plan for Dewan Housing Finance (DHFL) that lenders are now examining is the best one under the circumstances, said Rajkiran Rai G, managing director and chief executive officer, Union Bank of India (UBI), the lead bank in the consortium of lenders to DHFL. Taking temporary control of the mortgage firm is an option banks are considering and they are still waiting for mutual funds (MFs) to sign the inter creditor agreement (ICA), Rai added.

“Even if the banks acquire equity, it will be a very short-term thing. If we are not able to get a good investor at this point of time, then maybe, but it will not be a long-term proposition. It may happen. It is one of the ideas,” he said on the sidelines of Fibac 2019, an annual event organised by the Federation of Indian Chambers of Commerce & Industry (Ficci) and Indian Banks’ Association (IBA).

Rai said the company has been counting stake sale among its options right from the beginning of the resolution process, but the process takes time because likely investors look for clarity. He said it is yet unclear if MFs will end up joining the resolution process formally. “As such, now we have no idea (about whether Sebi will allow MFs to sign ICA), but then definitely it is a regulator-to-regulator discussion,” Rai observed, referring to discussions between the RBI and the Sebi.

The resolution process in the case of DHFL is a complex one as it is the first financial company being resolved under the RBI’s June 7 circular and there are multiple categories of creditors involved — banks, insurance companies, MFs and pension funds. Rai explained that the way MFs are structured and the kind of investment they do, for them to implement a resolution plan to the satisfaction of their investors is not easy.

“For banks, it’s a very normal thing because our rules permit it, our regulator understands it. MFs are operating in a totally different area. Suppose, a resolution plan involves a payout over 10 years, how will a mutual fund handle it?” Rai said, adding, “The only thing I can say is that the resolution plan which is under discussion can be the best plan under the given circumstances.”

Some features of the June 7 circular are not applicable to the resolution process for DHFL as a financial company cannot be taken to the insolvency courts. For companies from other sectors, the circular prescribes either bankruptcy proceedings or a high provisioning requirement. “The 180-day stipulation does not apply here because it cannot go to NCLT. I think it may not go that far (of getting RBI involved after 180 days elapse),” Rai said.

The Financial Express reported

LM: Lights out for CG Power as serious lapses are revealed

20 August 2019: The board of Gautam Thapar-promoted CG Power and Industrial Solutions Ltd said the company will restate accounts after discovering “significant accounting irregularities” and governance lapses, sending its shares plunging by the maximum daily limit of 20% on Tuesday.

The board said it has found “suspect” transactions that have led to significant understatement of the company’s liabilities and advances to related and unrelated parties.

CG Power’s disclosure of accounting lapses is the latest in a series of governance and accounting scandals that have hit India Inc. over the past year, increasing scrutiny over not just the promoters of the companies but also independent directors, auditors and regulators.

The inability of Thapar’s Avantha Group to meet debt obligations has meant that group companies had to cede control of CG Power to lenders, although they are still listed as the promoter group.

As on 30 June, Avantha had a negligible stake in the company, with lenders invoking the entire pledged promoter shareholding earlier this year. Private sector lender Yes Bank holds a 12.79% stake in CG Power as of 30 June, while other major shareholders include HDFC Mutual Fund, Aditya Birla Sun Life, Franklin Templeton and Life Insurance Corporation of India.

Yes Bank’s shares crashed 7.11% to ₹71.25 on BSE following the disclosure by CG Power.

“The total liabilities of the company and the group may have been potentially understated by approximately ₹1,053.54 crore and ₹1,608.17 crore, respectively as on 31 March 2018,” CG Power said in its exchange filing.

The company said that advances to related and unrelated parties and the Avantha Group may have been potentially understated by ₹1,990.36 crore and ₹2,806.63 crore, respectively as on 31 March last year.

The board said that certain assets of the company were purportedly provided as collateral without due authority and that the company was made a co-borrower and/or guarantor for enabling ostensibly unrelated third parties to obtain loans without due authorization.

These transactions were purportedly executed by company personnel (current and past) including certain non-executive directors, certain key managerial personnel and other employees, the company said.

CG Power’s revenue rose to ₹5,355 crore in the year ended 31 March from ₹5,106 crore in the previous fiscal. It reported a loss of ₹1,403 crore in the year ended 31 March compared to a profit of ₹19.24 crore in the previous year.

Avantha Group’s troubles can be traced to its ambitious expansion plans fuelled by debt in the pre-Lehman Brothers period, when it made the largest overseas acquisition by an Indian paper maker in 2006, buying Malaysia’s largest pulp and paper company Sabah Forest Industries in a $261 million deal. That, and other acquisitions, eventually stretched the group’s balance sheet too thin.

According to Bloomberg data, CG Power reported a consolidated debt of ₹2,664 crore as on 31 March, up from around ₹1,996 crore in the previous fiscal, while Ballarpur Industries Ltd, another group company, reported a debt of ₹5,496 crore as on 31 March.

Ballarpur too has seen massive erosion in share value, with its stock price falling over 86% since the start of the year to close at ₹0.73 on Tuesday.

The promoter group holds 25% in Ballarpur, however almost all of it is pledged with lenders as of 30 June, stock exchange data shows.

In 2017, lenders to Ballarpur Industries took management control of the company as part of strategic debt restructuring, a Reserve Bank of India mechanism to address bad loans.

The group’s foray into the power business too didn’t yield a successful outcome, saddling it with additional debt.

Its 600 megawatt (MW) thermal power plant in Chhattisgarh under Korba West Power Co. has been sold to Adani Group by lenders. Banks are also trying to find a buyer for its other power plant in Madhya Pradesh—Jhabua Power—which has 600MW of operational thermal capacity, with an additional 660MW under implementation.

The LiveMint reported