BQ: DHFL’s Proposal: Small Depositors, Investors To Be Paid In Time, Everyone Else Waits

22 August 2019: Certain retail investors who participated in non-convertible debenture issuance by Dewan Housing Finance Corporation Ltd. and retail depositors will be repaid in time at contractual interest rates, according to the resolution plan proposed by the beleaguered housing financier.

Full repayment is applicable for investors and depositors with up to Rs 10 lakh outstanding. Any deposits or NCDs beyond Rs 10 lakh would be treated on a par with secured lenders, DHFL has proposed.

For non-retail NCD holders and banks that have extended term loans and other forms of credit, DHFL has proposed extended repayment periods, lowered interest rates and conversion of a part of their exposure in to long-term equity-like instruments.

BloombergQuint has reviewed a copy of the proposed resolution plan, which is currently under consideration by the creditors. The banks with exposure to DHFL and insurers have already signed an inter-creditor agreement to ensure a coordinated plan of action to resolve stress in the company. Mutual funds, which have invested in the NCDs, are yet to sign the agreement as they await approval from the market regulator.

The Resolution Plan

DHFL’s over Rs 85,000 crore liabilities are to be split into three portions, with each receiving different treatment and repayment schedule.

1. Loans To SRAs & Large Projects

For loans to slum rehabilitation projects, large project loans, inter-corporate deposits and some pass through certificates, where total liabilities are over Rs 36,000 crore, the housing financier has proposed that the repayment period be extended.

Among these liabilities, bank debt worth Rs 16,175 crore and public deposits worth Rs 4,162 crore will be repaid over 16 years, at 0 percent interest rate, the company has proposed. The repayments would also carry an eight-year moratorium on repayment of principal amount. A portion of these liabilities would be converted into long-term instruments like redeemable preference shares or unsecured debentures, the company said.

NCDs worth Rs 14,121 crore would be repaid over nine years with no interest payments either. In this case, the proposed moratorium is two years.

The company has also proposed conversion of Rs 1,764 crore worth debt to equity, which would ensure the lenders control 51 percent equity in the company. The conversion will be at a price of Rs 54 per share.

2. Loans To Other Projects

For projects and mortgages worth up to Rs 14,700 crore, the company has proposed an extended repayment period of eight years at 8.5 percent annual interest. This includes term loans worth Rs 570 crore received from banks and Rs 14,129 crore worth NCDs. Here too, the company has sought a two-year moratorium on repayment of the principal, which means repayments would only start after the moratorium.

3. Retail Loans & Related Pass Through Certificates

As per the proposed resolution plan, this portion of the liabilities includes public deposits and public NCDs up to Rs 10 lakh, non-retail NCDs and term loans from banks. These funds were used to generate retail loans and pass through certificates worth over Rs 34,000 crore.

The non-retail NCDs have been split into two, where NCDs worth Rs 2,599 crore would be repaid over 10 years at 0 percent interest, while NCDs worth 12,198 crore would be repaid over the same time horizon at an interest rate of 8.5 percent. Term loans worth Rs 14,726 crore would be repaid over 10 years at 10 percent interest per anum, while loans worth Rs 1,190 crore would carry a lower rate of 8.5 percent, as per the plan.

DHFL has been under financial stress since September 2018, after the debt market turned cautious towards housing and non-banking financiers, following the crash of Infrastructure Leasing & Financial Services. It has now completely stopped lending and has sought funding worth Rs 1,200-1,500 crore a month from its lenders to restart its operations.

In the past, DHFL has claimed it has repaid Rs 41,000 crore worth dues, which it achieved by selling its loan portfolio to other lenders. The stress in the company is currently being resolved under the Reserve Bank of India’s June 7 circular, which deals with restructuring debt. The lenders had signed the inter-creditor agreement in the first week of July, following which, they have 180 days to implement a resolution plan.

If they are unable to implement the plan within the timeline prescribed by the RBI, the banks would have to set aside higher penal provisions. DHFL cannot be resolved under the insolvency and bankruptcy code, since the code doesn’t cover financial companies.

Lenders have mulled an option to take over the company and run its lending business as a unit of the consortium. However, this option will be exercised only if all other avenues of turning around DHFL fail.

Bloomberg Quint reported

NIE: Supreme Court extends status quo by a week on Jaypee’s insolvency resolution process

22 August 2019: The Supreme Court Thursday extended by a week the status quo on the insolvency process on Jaypee Group’s plea challenging the NCLAT order allowing fresh bidding for debt-laden Jaypee Infratech.

A bench of Justices A M Khanwilkar and Dinesh Maheshwari was told by senior advocate Fali S Nariman, appearing for Jaypee Group, that a batch of 18-19 petitions has been filed challenging the new amendments to the Insolvency and Bankruptcy Code (IBC).

The pleas have been listed for September before another bench of the top court, Nariman said.

The bench then enquired about Additional Solicitor General Madhavi Divan, who is assisting the court on behalf of Centre in the case.

A counsel informed the bench that she was arguing a part-heard case in another court, after which the top court posted the matter for further hearing on August 29.

“List after one week. Interim orders to continue till further orders,” the bench said.

On August 2, the Supreme Court had ordered status quo for two weeks on the insolvency proceeding after Jaypee Group challenged the July 30 order of National Company Law Appellate Tribunal (NCLAT), which allowed the fresh bidding for the cash-strapped Jaypee Infratech.

The top court had said that the new resolution plan has to be in accordance with the new amendments in the IBC.

Earlier, Divan had told the bench that Parliament has passed the amendments in Insolvency and Bankruptcy Code (IBC), which would address various concerns of homebuyers.

She had said that a meeting of various stakeholders with the Finance Ministry was scheduled to be held in the first week of August to resolve taxation and other related issues.

On July 30, the NCLAT had allowed fresh bidding for the cash-strapped Jaypee Infratech but barred its promoter Jaypee Group from participating in the auction.

To enable the fresh bidding process, the NCLAT extended the resolution period of Jaypee Infratech for another 90 days, which includes a 45-day window for the resolution professional (RP) and lenders of the debt-ridden firm to invite fresh bids.

The NCLAT direction came in view of lenders rejecting the resolution plan of state-owned NBCC and Suraksha Realty in the second round of bidding.

Jaypee Infratech went into insolvency in August 2017 after the National Company Law Tribunal (NCLT) admitted an application filed by an IDBI Bank-led consortium.

In the first round of insolvency proceedings conducted last year, the Rs 7,350-crore bid of Lakshdeep, part of Suraksha Group, was rejected by lenders.

The NCLAT had asked state-owned NBCC, whose bid was rejected by the CoC of Jaypee Infratech, to submit fresh resolution plan for the debt-ridden company.

The appellate tribunal has also rejected the plea of Jaiprakash Associates Ltd, the promoters of Jaypee Infratech, to be eligible to submit a bid.

On June 18, the Centre had informed the apex court that fresh amendments to the IBC give appropriate weightage to homebuyers to protect their interest.

The Lok Sabha on earlier passed amendments to the Insolvency and Bankruptcy Code, with the government asserting that the spirit behind the law is not to allow companies to die.

Rajya Sabha has already passed the bill and with its passage in the lower house, the Insolvency and Bankruptcy Code is set to be amended.

The top court had earlier said it may use its plenary power under Article 142 of the Constitution to protect the interest of over 21,000 homebuyers in the JIL case if their grievances are not addressed.

The court is hearing a plea which has sought that JIL is not sent into liquidation, although the deadline for the corporate insolvency resolution process is over, as it would cause “irreparable loss” to thousands of homebuyers.

On August 9 last year, the apex court ordered re-commencement of the resolution process against JIL and barred the firm, its holding company and promoters from participating in the fresh bidding process.

It allowed the Reserve Bank of India to direct banks to initiate corporate insolvency resolution proceedings (CIRP) against Jaiprakash Associates Ltd (JAL), the holding company of JIL, under the IBC.

The New Indian Express reported

BI/ET: Anil Ambani’s Reliance Marine is his second company to be declared bankrupt

22 August 2019: This could be the worst year of 60-year-old Anil Ambani’s life. Within two months of Reliance Communications heading to bankruptcy, yet another company Reliance Marine was today admitted for insolvency proceedings, as per an ET report.

The group’s telecom venture, Reliance Communications went bankrupt in May with massive unpaid dues of around ₹46,000 crore.

Reliance Marine and Offshore is a subsidiary of Reliance Naval, whose shares are trading at a mere ₹1.22. The debt of Reliance Naval is a 100 times that of the company’s market value of ₹90 crore today (August 22).

Ballooning debt

Reliance Naval’s subsidiary Reliance Marine has debt of around ₹1,000 crore and the lenders include government firms like NBFC and IFCI, who filed the bankruptcy petition as early as 2017, which has been accepted today.

A company spokesperson has not responded to Business Insider’s queries on the development.

Anil Ambani had bought over Pipavav Defence, a struggling company in 2015 and renamed it Reliance Naval, hoping to bag defence engineering contracts from the government. And he did. The company had contracts worth ₹2,500 crore from the Indian Navy, but as the deadline was overshot by 4 years, it decided to encash the bank guarantees that RNaval gave.

Crisis of confidence

A second group company going bankrupt will add to crisis of confidence in connection with Anil Ambani.

Auditors have been pointing out discrepancies in the financials of his companies, or even quitting his companies. In June, PriceWaterHouseCoopers has quit as the auditing firm of Reliance Capital and Reliance Home Finance saying that it “ impaired its independence”. Recently, Reliance Capital’s board gave a clean chit to the management over the allegations.

Added to that, yet another of its company Reliance Infrastructure’s auditors Pathak HD& Associates who pointed out that there was money missing from their balance sheet, and that the audit was hence incomplete.

Lack of confidence has hurt the share prices of all the group companies, and in turn, the small investors who hold the stock.

As reported on Business Insider

ET: Videocon requests NCLT to include overseas oil assets in insolvency process

22 August 2019: Videocon Industries has approached the bankruptcy court to include its overseas oilfield assets Videocon Energy Brazil Ltd and Videocon Indonesia Nunukan Inc in the ongoing corporate insolvency resolution process.

Videocon Group’s consumer electronics business was admitted for insolvency during April, but the oil assets were left out by lenders in the bankruptcy filing.

The company on Tuesday requested the National Company Law Tribunal (NCLT) to include details of its oversees oil and gas assets in the information memorandum that would be circulated to potential bidders and to restrain lenders from selling these assets.

“The entire funding for these oil assets was done by Videocon Industries and these are controlled by the company,” said Sandeep Ladda, a lawyer representing Videocon and its founder Venugopal Dhoot.

The move comes after the consortium of lenders to Videocon, led by State Bank of India, invited bids for the group’s oversees oil and gas assets through newspaper advertisements. Expression of interest had to be submitted latest by Thursday, August 22, as per the invitation.

Lawyers representing Videocon argued that the beneficial ownership of the Brazilian and Indonesian assets vests with Videocon Industries and that the resolution professional of the company be directed to treat all assets and properties of the subsidiary as assets of the parent company.

SBI, however, argued that assets of the two overseas subsidiaries do not fall under the IBC within Indian jurisdiction and any move to bring these assets under IBC would run into cross-border law applicability issues.

Bharat Petroleum Corporation Limited (BPCL), which has an equal stake in the oversees companies along with Videocon, is against including these assets in the insolvency resolution process or the moratorium.

“The relief will directly impact Bharat Petroleum and the impact will be for an amount of Rs 14,000 crore,” said a lawyer representing BPCL. “This amount is likely to be annulled if the reliefs are granted.”

NCLT would hear the matter on Thursday.

SBI had last month filed multiple pleas in various courts against Videocon Industries and 14 other companies controlled by founder Venugopal Dhoot to recover Rs 20,000 crore after they defaulted on payments to a consortium of banks.

The court appointed Mahender Khandelwal as the resolution professional and gave a go-ahead for consolidating the insolvency proceedings of 13 Videocon group firms into a single process.

The Economic Times reported

FE/IE: Dutch court threatens to sell Jet Airways’ confiscated assets

22 August 2019: The administrator of a Netherlands court, which is pursuing insolvency of grounded Jet Airways, on Wednesday threatened to sell off the confiscated assets of the debt-laden carrier because of non-cooperation by the committee of creditors (CoC).

A three-member bench of the National Company Law Appellate Tribunal (NCLAT) headed by Justice SJ Mukhopadhaya has sought the lenders’ response on whether they are ready to pay fees and bear costs incurred by the Dutch court administrator, Rocco Mulder.

The NCLAT said it would consider similar treatment for creditors of foreign countries as financial creditors and could allow cost of insolvency resolution process at overseas location to be borne in India. The tribunal will further hear the case on September 4.

Representing Mulder, advocate Sumant Batra told the National Company Law Appellate Tribunal (NCLAT) that the lenders are yet to decide on their claims.

“I will have to withdraw the undertaking for not disposing of the seized assets since there is no response from the CoC on my demands,” Batra said.

The administrator undertook before the NCLAT on July 11 not to sell Jet’s assets till the pendency of the case. He had challenged the NCLT, Mumbai, decision to not consider the insolvency proceedings currently underway in the European nation.

Staying the NCLT order, the appellate tribunal had said it will clarify law on the course of action when two insolvency proceedings are moved against the same company in different countries.

Jet, which terminated all operations on April 17, is facing insolvency proceedings in the Netherlands as well, where it was declared bankrupt after failing to pay two European creditors with dues of around Rs 280 crore.

The Dutch court had seized one of Jet’s Boeing 777 aircraft that was parked in the Schiphol airport in Amsterdam where Jet had a regional office.

The NCLT Mumbai on June 20 admitted the insolvency petition filed by SBI against Jet which owes unpaid liabilities of around Rs 25,000 crore in the form of bank loans, unpaid salaries, vender dues and lease rentals. It appointed Grant Thornton’s Ashish Chhawchharia the interim RP with instructions to complete the resolution process in 90 days as the matter is of national importance.

Since then, Jet’s equity partner Etihad Airways and Anil Agarwal, executive chairman, Vedanta Resources, have backed out of the resolution process. —FE

The Indian Express/ The Financial Express reported

DNA: Lenders fail to attach Sterling Biotech’s overseas assets

22 August 2019: Banks have failed to take adequate safeguards to protect the loans extended to Sterling Biotech by attaching the oil assets of the promoters in Nigeria.

Instead of carrying out a prior examination on how this could be done by discussing with the Nigerian oil regulator, senior bank officials made a visit to the country years after issuing two standby letters of credit (SBLC) worth $230 million (Rs 1,500 crore) to the promoters Nitin Jayantilal Sandesara and Chetan Kumar Jayantilal Sandesara, who are now absconding, to raise money overseas.

Despite the officials travelling to Nigeria from September 17 to 23, 2017 to attach the oil assets of the Sandesaras, no action could be enforced. Initially, the agreement was that the overseas oil company, Sterling Oil Exploration & Energy Production Company Ltd (SEEPCO), would take responsibility for the unpaid loans of Sterling Biotech’s Indian companies, but the promoters failed to repay the loans and were classified as wilful defaulters.

The Sandesaras are defaulters of Rs 15,600 crore taken on behalf of their two Indian companies, Sterling Biotech and Sterling SEZ & Infra. While Sterling Biotech owes Rs 7,500 crore, its sister concern Sterling SEZ & Infra owes Rs 8,100 crore. Despite these loans being unpaid to the consortium of lenders led by the State Bank of India (SBI), two guarantees were offered to the group’s foreign outfit, SEEPCO, so that it could borrow from overseas.

“The banker group that went to Nigeria reported back that recovery of loans from the oil field assets could be done only if the Nigerian oil regulator agreed to substitute SEEPCO with new owners,” said one of the bankers. However, the banks failed to reassign SEEPCO’s participating interest right to any other investor. No effort was made to find another investor or use the good offices of the government of India for taking charge of interests in the oil fields. No visit to Nigeria was made before sanctioning the two SBLCs, the source said.

The first SBLC worth $130 million was issued on March 2014 while the second one of $100 million was approved in September 2015. SBI had fronted the guarantees on behalf of the other banks despite two of its loans to Sterling turning into non-performing asset (NPA) and the promoters being classified as wilful defaulters.

A detailed questionnaire sent to SBI and Reserve Bank of India (RBI) failed to elicit any response.

Andhra Bank, which is now leading the lender consortium, had initially referred Sterling Biotech to the National Company Law Tribunal (NCLT) on June 11, 2018. But later lenders of Sterling Biotech voted with a 90.32% majority to pull the case out of the NCLT. In March this year, the creditors told the court that they would withdraw the case and have a one-time settlement (OTS) with the promoters. However, they refused to give the details of the OTS to the resolution professional (RP) saying that they would inform the court at the appropriate time.

A source told DNA that the absconding promoters made an offer of Rs 5,500 crore, which is 40% of the total claims of Rs 15,000 crore of the banks.

Andhra Bank has petitioned through its lawyers AZB Partners and Nishit Dhruva from MDP and Partners to withdraw the case from the NCLT so that banks could settle part of the debt with a representative, Farad Darruwala, of the promoters. However, the NCLT court noted that in the OTS there is no mention whether Daruwala is authorised by the promoters, the Sandesaras.

The DNA reported