Alok Industries’ Buyout By RIL-JM Financial ARC Runs Into Delays: Exclusive

The joint resolution plan submitted by Reliance Industries Ltd. and JM Financial Asset Reconstruction Company Ltd. to purchase Alok Industries Ltd. under the Insolvency and Bankruptcy Code is yet to be completed as the bidders haven’t concluded payments due to financial creditors, three bankers in the know told BloombergQuint on the condition of anonymity.

Alok Industries was one of twelve large firms referred for insolvency in June 2017 and owed banks over Rs 29,000 crore. In March, the Ahmedabad bench of the National Company Law Tribunal approved the resolution plan submitted by RIL-JM Financial ARC.

The deal, however, is yet to conclude. According to RIL-JM Financial ARC’s resolution plan, financial creditors were to receive a settlement of Rs 5,052 crore against their claims worth over Rs 29,000 crore. The repayment plan included upfront payment of Rs 500 crore and a refinancing deal for over Rs 2,500 crore, which would be tied up after approval from the National Company Law Tribunal.

According to the bankers cited earlier, the lead lender State Bank of India had agreed to provide the refinance, against a corporate guarantee issued by RIL. Since Alok Industries’ ability to service the debt was doubtful, a corporate guarantee would have helped the bank get more comfort, when closing the deal. However, RIL has declined to provide such a guarantee, according to two of the three bankers cited earlier.

However, the issue is unlikely to derail the acquisition of Alok Industries, bankers said. The bidders can access funding for Alok Industries on the basis of the company’s balance sheet and not let the liabilities show up on RIL’s book. One option is to raise funding through JM Financial ARC, said one of the bankers cited earlier.

Queries sent to RIL and SBI on Wednesday and to JM Financial ARC on Thursday weren’t answered immediately. Ajay Joshi, the resolution professional for Alok Industries, declined to comment on the story, citing “confidentiality obligations”.

Alok Industries has seen a long drawn out process of resolution after it was admitted for insolvency proceedings in July 2017. Interest in the asset was low and in April 2018, the committee of creditors rejected RIL-JM Financial’s bid because it had proposed an upfront payment of only Rs 500 crore. This made liquidation a possibility in the case of Alok Industries. However, workers employed by Alok Industries opposed this and made a representation to the NCLT bench.

In June 2018, the Ahmedabad bench asked the resolution professional to reconsider the bid received during the resolution process and see if the company can be turned around, as liquidation could lead to considerable job losses. The committee of creditors later approved the resolution plan submitted RIL-JM Financial ARC.

As part of the plan, RIL-JM Financial ARC had agreed to pay Rs 234 crore for insolvency related cost, Rs 19.33 crore toward workmen dues, Rs 5,052 crore to financial creditors, Rs 442 crore for working capital needs of the company and Rs 500 crore for capital expenditure. The operational creditors were to be paid nothing, as under liquidation they wouldn’t have received a payout, according to the resolution professional’s assessment.

In the resolution plan, the bidders had also proposed a five-year moratorium to delist Alok Industries’ shares. In March, when the case was up for final approval from the NCLT, RIL-JM Financial ARC sought an exemption on the moratorium and wanted to delist shares immediately. This request was made after the Securities and Exchanges Board of India had eased the requirements for delisting shares of a company undergoing insolvency proceedings. Later, the request for an exemption was taken up with the appellate tribunal as well.

However, the NCLT and the National Company Law Appellate Tribunal, declined to give bidders the exemption they sought and asked them to follow the approved resolution plan. RIL-JM Financial ARC’s request for immediate delisting of shares was also opposed by retail shareholders of Alok Industries.