Insolvency: Eight Down, Fate Of Four Hangs In Balance
An update on the 12 cases slotted for insolvency
Lenders to Essar Steel Ltd., Bhushan Steel Ltd. and Electrosteel Steels Ltd. on Thursday decided to refer these case for resolution under the Insolvency and Bankruptcy Code (IBC), bankers who were part of these meetings told BloombergQuint. These cases will now be referred to the National Company Law Tribunal.
The meetings were aimed at taking stock of recent developments in these cases, building consensus around the outstanding debt and getting a sense of the hurdles in resolving stressed accounts, the bankers said.
Essar Steel and Bhushan Steel, which have outstanding debts of approximately Rs 45,000 crore each, are two of the largest cases to be tried under the insolvency and bankruptcy proceedings. Electrosteel Steels, with an outstanding debt of about Rs 11,000 crore has been a stressed case for many years and has also been subjected to action under the Strategic Debt Restructuring (SDR) scheme.
Here is an update on what has happened in the remaining cases which were shortlisted by an independent advisory committee of the Reserve Bank of India (RBI) last week and sent to bankers for action.
1. Monnet Ispat & Energy
Lenders to Monnet Ispat met earlier this week and decided to take this case to the NCLT for insolvency proceedings. The Delhi-based steel company has faced a severe financial crunch owing to the drop in commodity prices and huge steel imports from China. This led to the company's debt ballooning to nearly Rs 12,500 crore. Lenders invoked the strategic debt restructuring (SDR) scheme to convert the company's debt into equity in August 2015. But they have failed to find a new investor for the company.
2. Bhushan Power & Steel
Lenders to Bhushan Power & Steel also decided to refer the case to insolvency and bankruptcy proceedings. The Kolkata-based steel company, currently being run by Sanjay Singhal, has been under stress about the same time as Bhushan Steel. The debt size of both these companies is comparable and the reasons for stress in the two firms are similar. Lenders have been trying various measures to resolve the debt in the company, including changing management and implementing the RBI's scheme for sustainable structuring of stressed assets (S4A).
3. Era Infra Engineering
Lenders will meet on this case shortly to discuss admission to the NCLT, bankers told BloombergQuint. With approximately Rs 6,000-crore debt, the company has been struggling for many years now as it had originally featured in the list of firms that was admitted under the corporate debt restructuring (CDR) scheme in 2013. While the restructuring under CDR has failed, lenders have been attempting to resolve the debt using some other resolution schemes. A corporate debtor to the company, Prideco Commercial Projects Pvt. Ltd., had filed a case under the Insolvency and Bankruptcy Code at the National Companies Law Tribunal. The court has appointed an interim resolution professional in the case on April 12.
4. ABG Shipyard
Lenders led by ICICI Bank are yet to meet on this case. This is another stressed company which has been in the news since the days of CDR in 2013. Shipyards were another sector, apart from steel, which suffered severe losses after a drop in trade using the sea route. After an unsuccessful exit from the CDR cell, the promoters of the company have been attempting to sell majority stake to investors across the world. The company has been in the news for a potential sale to international investors twice. Neither has been concluded.
5. Jaypee Infratech
Lenders to Jaypee Infratech, led by IDBI Bank, have decided to approach the NCLT for proceedings under the insolvency and bankruptcy code. This is a Jaypee Group company, which has been struggling to meet repayment deadline after its construction of the Yamuna expressway, faced multiple delays and cash-flow problems. This has led to the company's debt ballooning to over Rs 10,000 crore. Over the course of restructuring the debt, banks have taken control of parcels of land owned by the company in exchange for reducing debt.
6. Amtek Auto
Lenders to Amtek Auto are yet to meet to decide on the fate of the company. After defaulting on debt owed to bondholders in 2015, Amtek Auto became a stressed asset for banks as well. With nearly Rs 14,000 core worth of debt awaiting repayment, lenders have been trying to push the company to sell some assets and reduce the burden. The maker of automobile parts had agreed to sell a significant stake to financial investors and reorganise its business. However, this hasn't moved as planned.
7. Alok Industries
Lenders to textile firm Alok Industries are yet to meet. The company has been reeling under the burden of high debt in a slow-growing sector. Lenders to Alok have been trying to invoke the S4A scheme in the company to take out about half of the company's debt into their investment books, while letting the company service the debt. However, since the company does not meet the norm of 50 percent of its financial obligations being payable with the current level of cash flows, lenders have not been able to invoke S4A.
8. Jyoti Structures
Lenders to Jyoti Structures, led by State Bank of India on Wednesday, decided to invoke insolvency proceedings. Owing to the pressures emanating from the power sector, this company has struggled to clear its debt to domestic lenders. Moreover, a failed international business has also put a severe financial strain on the parent company. Last year, the lenders to the company had invoked SDR in a bid to sell a majority stake in the company to a bidder. This led to some initial interest from a few power transmission companies, but there was no sale.
9. Lanco Infratech
Lenders led by IDBI Bank who met on Monday, have decided to invoke the IBC against the company. The Hyderabad-based Lanco group and its various Infrastructure businesses have been a victim of the slowdown in the Indian economy and issues such as environmental approvals. Lanco Infratech, the flagship company of the group, has been at the centre of the stress and lender action. The company had originally planned to sell its assets and reduce its debt burden. However, in 2015, the company's management said that the sales had been postponed due to low valuation. Lanco Teesta Hydro Power, the company's hydro power unit in Sikkim, was the first company in which lenders invoked SDR in August 2015.
The lead lenders to all these 12 companies have time till July 15 to get these cases admitted before the NCLT, bankers had earlier told BloombergQuint earlier. Once that happens, the boards of all of these companies will cease to exist and resolution professionals will be appointed in all of them to run daily affairs. These professionals along with the committee of creditors will come up with a resolution plan within 180-270 days of admission, failing which, these companies will go into liquidation.