LM: Lenders set terms for DHFL liquidation after big loss

23 Jan 2020: Indian lenders set preliminary terms for companies wishing to bid for Dewan Housing Finance Corp.’s assets, people with knowledge of the matter said, as the nation’s bankruptcy courts attempts to resolve its first shadow bank insolvency.

The assets have been divided into three groups — mortgages, loans to builders of government-assisted housing, and project financing, the people said, asking not to be identified because the discussions are private. They have set minimum net worth and asset requirements for the bidders in each category, the people added.

The debt resolution process for Dewan Housing is being closely watched because it’s likely to create a precedent for other shadow lenders affected by the crisis which broke out in 2018 with a series of defaults at a major infrastructure lender. Dewan Housing, which has a market capitalization of ₹500 crore ($70 million), reported a ₹6,640 crore loss for the quarter ended Sept. 30 late on Wednesday.

Dewan was one of the worst affected by the crisis, prompting the Reserve Bank of India (RBI) to take over management of the company in November and start bankruptcy proceedings. Representatives at Dewan and Union Bank of India, which is leading the creditor’s group, didn’t immediately respond to emails seeking comment.

Bidders for the mortgage loans will need a minimum net worth of ₹3,500 crore and ₹10,000 crore of assets under management, the people said. While investors for the builder’s loans taken out under the government’s slum rehabilitation program require net worth of ₹500 crore and assets under management of ₹1,000 crore, one of the people said.

For project loans, the requirement is ₹1,000 crore of net worth and ₹4,000 of assets under management, the person added.

The decision was taken at a lenders meeting last week, at which advisory firm Grant Thornton was appointed to conduct an audit of Dewan’s transactions, the people said. The lenders also appointed real estate specialists JLL India and RBSA Advisors to value Dewan’s assets and give them an assessment of the losses they are likely to face, the person added.

Dewan Housing has about ₹3,800 crore in outstanding inter corporate deposits, the company said in a filing Wednesday, adding that it’s uncertain the amount can be recovered. It has set aside ₹2,400 crore as provisions to cover this.

“The company is undergoing substantial financial stress since second half of the previous financial year,” Dewan Housing said. “As a result, the company’s ability to raise funds has been substantially impaired and the business has been brought to a standstill.”

Source: Live Mint

FE: IDBI to meet RBI this week; seeks to exit PCA framework

16 January 2020: Since coming under the PAC, more than a third of its entire book became dud loans in Q2 of FY18, with the gross NPA ratio touching 32 per cent and the net NPAs at 17.30 per cent.

LIC-owned IDBI Bank, currently under prompt corrective action since May 2017, is expected to hold meeting with the RBI this week to seek removal of operational restrictions, according to sources. The lender will make a presentation to the Reserve Bank of India on its improved financial position, the sources said, adding the management is hopeful of coming out of the PCA framework by the end of this month. The RBI had placed IDBI Bank in May 2017, after it had breached the thresholds for capital adequacy, asset quality (net NPAs was over 13 per cent in March 2017), return on assets and the leverage ratio.

Since coming under the PAC, more than a third of its entire book became dud loans in Q2 of FY18, with the gross NPA ratio touching 32 per cent and the net NPAs at 17.30 per cent. “The presentation to the RBI will be on the key financial numbers. On the capital front and in terms of net NPAs, we have been able to make progress,” the sources told PTI. A query sent to the bank did not elicit any response.

The PCA norms trigger if a bank’s net NPA crosses 6 per cent or if CRAR (capital to risk weighted assets) is below the regulatory requirement of 10.88 per cent as of March 2019. In the quarter to September 2019, its net NPA stood at 5.97 per cent and tier-1 capital and CRAR improved to 9.52 per cent and 11.98 per cent, respectively. Capital infusion through recap bonds by the government in Q2, and also from LIC, and recovery from stressed accounts have also helped the bank in shoring up its capital position, another person familiar with the matter said.

In the second quarter of FY20, the bank received Rs 4,743 crore from LIC, which holds 51 per cent stake, and Rs 4,557 crore from the government which still owns 47.11 per cent. Another positive is the recovery of close to Rs 3,000 crore from the NCLT resolution of Essar Steel and Ruchi Soya in the third quarter, further strengthening the capital position, the sources said.

The only area where the bank is still lagging is return on assets (RoA) which continues to remain negative for the fourth consecutive year. However, the bank is hoping some relaxation on the RoA front after the RBI eased the same for five other banks last year. In September quarter of this fiscal, IDBI Bank had reported a net loss of Rs 3,459 crore, marginally better than Rs 3,602 crore in the year-ago period.

In FY19, RBI removed five banks — Bank of India, Bank of Maharashtra, Oriental Bank of Commerce, Allahabad Bank and Corporation Bank — from the PCA framework in two phases after capital support from government that resulted in improvement in their financial parameters. Capital infusion helped these lenders meet requisite capital thresholds and reduce their net NPA levels to below 6 per cent. The monetary authority as an effort to enhance its supervisory framework had introduced the PCA framework, based on structured early intervention mechanism, in December 2002.

The framework was subsequently reviewed by the RBI keeping in view the international best practices and recommendations of the working group of the Financial Stability and Development Council (FSDC) on resolution regimes for financial institutions and Financial Sector Legislative Reforms Commission. The revised PCA framework was issued on April 13, 2017 and implemented on March 31, 2017.

The Financial Express reported

ET: NCLAT asks investigative agencies to clarify over JSW Steel’s immunity in BPSL matter

16 January 2020: The National Company Law Appellate Tribunal (NCLAT) has asked the investigative agencies like Enforcement Directorate, SFIO and the CBI to file an affidavit clarifying whether JSW Steel, a successful bidder for Bhushan Power and Steel Ltd (BPSL), is liable for offences committed by the previous management of the debt-laden firm under the amended IBC.

A three-member NCLAT bench headed by Chairperson Justice S J Mukhopadhaya asked the agencies to file their reply affidavits by January 20 stating whether after insertion of section 32 A in the Insolvency and Bankruptcy Code (IBC) last month, JSW Steel has immunity from the alleged fraud committed by the previous BPSL managemet.

“The Directorate of Enforcement and the central government through the Secretary, MCA on behalf of the Serious Fraud Investigation Office (SFIO) and the Central Bureau of Investigation (CBI) are allowed to file additional reply affidavit by 20th January, 2020 stating therein as to whether JSW Steel, whose plan has been approved, are covered by newly inserted Section 32A of the IBC, 2016,” said the NCLAT in an order passed on January 13.

It further said: “In case, the answer is in negative, they will enclose the evidence in support of their stand after serving a copy of the same on the learned counsel for JSW Steel and other appellants.”

The appellate tribunal had directed to list the petition on January 23, for next hearing.

The government had last month amended the Insolvency and Bankruptcy Code (IBC) and inserted section 32A inside it, which mandates that once management or control of a debt-ridden company changes after the completion of Corporate Insolvency Resolution Process (CIRP), it would not be liable for any offences committed prior to the commencement of the insolvency resolution process.

The changes were made after the ED and the Ministry of Corporate Affairs (MCA) went loggerheads over the attachment of the assets of BPSL by the former over the money allegedly siphoned off by the erstwhile promoters of BPSL, which is presently going through insolvency resolution process.

On October 10, the ED had attached assets worth over Rs 4,025 crore of debt-ridden BPSL in connection with its money laundering probe linked to an alleged bank loan fraud by its former promoters of BPSL.

JSW Steel, which has emerged as a successful bidder for BPSL with its bid of Rs 19,700 crore, filed an appeal against ED’s move before the NCLAT, which had on October 14 directed them to be immediately released in favour of the resolution professional of the debt-ridden firm.

Earlier, on October 14, the NCLAT had directed the ED to release BPSL properties attached by the agency on the JSW Steel plea, alleging siphoning off of funds by its erstwhile promoters.

While the ED is of the opinion that it can attach the property of BPSL under the Prevention of Money Laundering Act (PMLA), the MCA has been maintaining that the ED cannot do so as proceedings under the Insolvency & Bankruptcy Code was on.

Earlier, on October 25, the NCLAT had asked both organisations, which are presently headed by Union Finance and Corporate Affairs Minister Nirmala Sitharaman, to settle the matter adding that there was no question of amendment of laws.

On this, the ED filed an affidavit before the NCLAT questioning its jurisdiction.

In the said affidavit, the ED told the appellate tribunal that it has no jurisdiction over the properties attached by the agency under the PMLA and asked it to vacate its earlier order and dismiss the appeal filed by JSW Steel.

The validity of the attachment could be examined by an adjudicating authority only under the PMLA, and hence the NCLAT should vacate its order passed on October 14, directing it to release the assets of BPSL, the ED told the NCLAT.

The Economic Times reported

VCC: Hinduja Group loses interest in Jet Airways but two suitors still in fray

16 January 2020: UK-based Hinduja Group did not submit its interest for Jet Airways Ltd by the Wednesday deadline, a lender that is part of the airline’s committee of creditors told VCCircle, locking shares of the airline in the lower circuit band of 5% at Rs 47.75 on the BSE on Thursday.

On the brighter side, South America-based Synergy Group and New Delhi-headquartered asset reconstruction company Prudent ARC Ltd have put in their expressions of interest, the lender said.

Now, the binding bids have to be submitted by February 15.

In December, the committee of creditors called for a fresh round of expressions of interest, the decision coming after the National Company Law Tribunal (NCLT) approved extending the period for Jet’s insolvency resolution by 90 days.

The NCLT had also directed the creditors to expedite their decision on seeking fresh bids after two new undisclosed investors had shown interest in the grounded airline. By then, Synergy Group was the sole known potential bidder for Jet.

A senior executive at State Bank of India, leader of the 26-member banks’ consortium to Jet, is not too optimistic of the resolution plans so far. “We are yet to see the financial capability and strength of Prudent ARC and Synergy Group,” the person said.

Another SBI official said lenders were hopeful about Hinduja Group submitting an expression of interest but were disappointed that it opted out.

Foreign bidders will have to seek local partners as Indian regulations allow foreign companies to hold only 49% stake in airlines. Synergy is yet to find its partner under the resolution plan.

Moreover, Prudent ARC could also be rejected by lenders as the bidding entity needs to have minimum Rs 2,000 crore (around $282 million) worth of assets under management.

The Mint newspaper had last year reported that Hinduja Group was keen to buy Jet but wanted itself to be indemnified from the airline’s legal liabilities.

The airline’s debt stands at over Rs 8,230 crore (about $1.16 billion) while the total liability under the Insolvency and Bankruptcy Code (IBC) to employees, suppliers and other clients is over Rs 6,400 crore (over $900 million).

Once the second-largest airline in the country, Jet was grounded on April 18 last year after which the NCLT initiated insolvency proceedings in June on SBI’s plea.

In August, Jet’s insolvency resolution professional received three expressions of interest — from Volcan Investment, which is billionaire Anil Agarwal’s family trust; Panama-based investor Avantulo Group; and Russian fund Treasury RA Creator.

Volcan withdrew a day later and Avantulo wasn’t shortlisted for the next round of bidding, leaving Treasury RA Creator as the only selected entity.

After the initial August deadline, Brazil-headquartered Synergy Group, which owns a majority stake in Colombian carrier Avianca Holdings, showed interest in Jet. The group, controlled by Bolivia-born Germán Efromovich, is engaged in aviation, energy and telecom.

Jet was founded by Naresh Goyal, who is being investigated by government authorities for alleged diversion of funds. It has accumulated losses of more than Rs 13,000 crore ($1.83 billion).

VC Circle reported

ET:Deutsche Bank-led group a step closer to Jindal India deal

16 January 2020: A Deutsche Bank-led consortium’s efforts to buy out the debt of a power plant operator in eastern India have advanced, after no rival bidder emerged.

The struggling utility is Jindal India Thermal Power Ltd., one of a string of power plants being put up for sale by banks stuck with their defaulting debt.

The sector has been hit hard by oversupply in recent years, a consequence of a costly push to bridge India’s once chronic power deficit and expand reach to under-supplied rural areas. Power generators form a significant chunk of India’s $130 billion bad loan pile.

The consortium offered 24 billion rupees ($339 million) in cash to settle the company’s 76 billion rupee debt including interest due as of end March, which is currently being restructured, said the people, asking not to be identified citing confidentiality. The unsolicited offer was opened up to competing bids in an auction but no rival emerged by the deadline last week, the people said.

Success for the Deutsche Bank group deal could help preserve the 33.98% equity stake that the BC Jindal Group held as of March 31, 2019.

BC Jindal Group company shares jumped. Jindal Photo Ltd. rose as much 12.2%, the most in seven months. Jindal Poly Films Ltd. shares were up as much as 20.3%, the most in over six years.

The offer would effectively mean that creditors, led by Punjab National Bank, would recover a fraction of their outstanding debt holdings, the people said. Typically, if lenders do not agree with a debt-recast plan, they have the option of taking the company to bankruptcy.

A spokesman for Deutsche Bank declined to comment and a representative for Punjab National Bank didn’t immediately respond to an email seeking comment.

The Economic Times reported

BBG: Deutsche Bank-Led Group a Step Closer to Jindal India Deal

16 January 2020: A Deutsche Bank-led consortium’s efforts to buy out the debt of a power plant operator in eastern India have advanced, after no rival bidder emerged.

The struggling utility is Jindal India Thermal Power Ltd., one of a string of power plants being put up for sale by banks stuck with their defaulting debt.

The sector has been hit hard by oversupply in recent years, a consequence of a costly push to bridge India’s once chronic power deficit and expand reach to under-supplied rural areas. Power generators form a significant chunk of India’s $130 billion bad loan pile.

The consortium offered 24 billion rupees ($339 million) in cash to settle the company’s 76 billion rupee debt including interest due as of end March, which is currently being restructured, said the people, asking not to be identified citing confidentiality. The unsolicited offer was opened up to competing bids in an auction but no rival emerged by the deadline last week, the people said.

Success for the Deutsche Bank group deal could help preserve the 33.98% equity stake that the BC Jindal Group held as of March 31, 2019.

The offer would effectively mean that creditors, led by Punjab National Bank, would recover a fraction of their outstanding debt holdings, the people said. Typically, if lenders do not agree with a debt-recast plan, they have the option of taking the company to bankruptcy.

A spokesman for Deutsche Bank declined to comment and a representative for Punjab National Bank didn’t immediately respond to an email seeking comment.

Source: ©2020 Bloomberg L.P.