IBC Ordinance: Rushed Amendment To Bankruptcy Code Will Hurt Banks’ Recovery, Anil Singhvi Says
Anil Singhvi said that the IBC amendment announce by Arun Jaitley, was “just not needed”.
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The amendments to the Insolvency and Bankruptcy Act were ‘hurried and counterproductive’ and will force banks to take larger haircuts, cautioned Anil Singhvi, managing director of ICAN Advisors.
He expects fewer bids to come in for large stressed assets facing insolvency proceedings as the newly-introduced provisions bar defaulting promoters from bidding for their assets, with some exceptions.
By having promoters removed from the whole thing, don’t you think this is game fixing by those who want to buy these assets?Anil Singhvi, Managing Director, ICAN
Amendments to the Insolvency and Bankruptcy Code, 2016, cleared by the President of India yesterday, say that those whose accounts have been non-performing for a year will not be allowed to participate in the resolution plan. Those who have not have settled overdue amounts on the said accounts will also not be permitted, said another provision within the amendments.
Watch the full conversation with Anil Singhvi here:
What was your reaction to the ordinance?
It was just not needed. It was done in a hurry. Somebody said it’s a historical moment and I don’t see any moment or history in it. So, I am amazed. What was the need for this? What are we trying to achieve with this? Are we helping or not helping promoters or helping bankers? There are only two constituents in this, either the lenders or the borrowers. But how is it helping either borrowers or lenders?
The third constituent is the economy and the people who put money in banks..
So there are lenders and borrowers. Borrowers may be a listed company which has minority shareholders. So it is for the bank which has deposit holders. So, this is the collateral damage in this whole system. Somebody has borrowed the money, somebody has lent money. When he lent money, what he was doing? The same promoter was there when he lent money. Today to come around and say that he was a wilful defaulter...he is the same character. In last 30 years, most people who have borrowed money have been on the scene. They have not borrowed in the last three years or one year before. All of a sudden you are saying that he should not be the bidder for the asset.
What is your specific criticism? Do you believe it will hurt price discovery of assets?
There is a Committee of Creditors who will evaluate all resolution plans which come to their consideration. If they feel the promoter is a wilful defaulter who does not have good credentials, they can throw him out.
Suppose he comes up with the highest bid for his own assets and he wants a haircut on it. Assuming that the second bid is 5-10 percent lower than the first bid. Are you saying you will not give an approval to a resolution plan just because it happens to be from the promoter? He was a wilful defaulter till yesterday. It happens globally in insolvency situations. Why do we have emotions and sentiments come around on this, saying that ‘oh you are the guys who gave me so much grief, now you can’t come back and pay 5 percent higher than others, I will not allow you do it’. Look at it the other way around. By having promoters removed from the whole thing, don’t you think this is game fixing by those who want to buy these assets?
In steel, there are 5-6 large assets which are at play. Who are the buyers? I am looking at the seriousness of those who are putting in these applications. Put a Rs 1,000 crore deposit for a Rs 50,000 crore asset. And if you don’t want to participate then your bid will be forfeited. You are putting seriousness on the part of promoter because ‘he had fooled me till now’ and I have people who can fool me again. What is the guarantee that they will not fool you? The ordinance also says that not only the promoter, but connected persons are also barred. Whoever is putting in bids, what about their credentials?
Indian promoters have fooled bankers. But is this the solution we are seeking for it? We are in insolvency, so there should not be no emotion or sentiment. Whosoever pays me the best money possible, I am here for it. Lenders say that I will take the least haircut which is the larger economic interest. Economic situation demands that I get the best price from the asset.
But may be this could give them cushioning to say no to the promoter.
You have got the NCLT process to show that this asset is at destress and we want to have this auctioned off. Leave the emotions aside. As a lender my job is to recover money and whosoever pays me the highest I must recover it.
Are you again getting the promoter to be your borrower? No. If it pays one-time settlement then that’s it. You mean to say that if today the promoter who is not allowed to participate, then is he winding up the business in India? Are you saying that the Essar steel will not have any single rupee borrowing from the banking system?
If the promoter is debarred by any proceedings, so are you saying that all the firms of Essar steel will come to standstill? Indian banks will not lend to them.
If one company goes into NCLT, you are using the yardstick to say that this promoter is not debarred from participating in this process which could be willful or any other defaulter or somebody has not paid for variety of reasons.
Now the flip side. The promoters are out and now there is no match fixing. There are 5-6 steel companies which are in distress and there are only three to four who will participate in this process. So, you have four to five guys who are going for match fixing and not discovery of the good price. No foreigners are going to participate in it. We will not see single foreigners participating in steel companies in India till date.
But what about JFE and they are willing to participate in JSW and bidding for these assets?
But that is in partnership. What is wrong if the existing promoter also brings in good partner? I am not championing the cause of the promoters. I am looking at the process. I am saying that get the maximum value of it. In the entire process the biggest loser and one who is being shafted out is minority shareholders of listed companies.
It is completely against the interest of minority shareholder that you don’t discover the best price and if the best price is given by the promoter, so be it because he is still the shareholder in it. Even if the promoter is not of good credential but he still is a shareholder.
There may be other bankers who may be willing to lend me If these bankers are tired of me then there may be half dozen set of bankers, may be global wiling to lend me.
If they are willing to lend then there is so much time before the company went to insolvency, so how miraculously those bankers will appear?
Yes. I did not know what will suit these bankers to agree with me. These bankers have to go through NCLT route because they don’t want CVC, CAG. So, they don’t want to be caught from multiple agencies in India. They don’t want court proceedings. They will take 60-70 percent haircut because this is through the order of NCLT. But if I sit with bilateral agreement with promoter, then my judgement will always be questioned. Promoter was waiting for this event because no banker was agreeing that I will settle for 50 cents. There is fear in India because if I take a decision I will be held up.
So, promoters were waiting for the NCLT process, let them arrive at some numbers and if I am successful I will pay this money. What if somebody says that this was my upfront money and I didn’t have till yesterday. So, that doesn’t debar me from having it today.
If they had the money then why didn’t they put it in equity and why you are bringing it from the back door?
I may have one asset in the company which has gone in distress and I have other two businesses. I can’t pull out money from these two businesses to make it limp. So, I will wait for some time. Remember, in last 4-5 years our economy has gone through tailspin. If you go by 2010-2011 GDP indices, we are growing at 4-4 ½ percent. The pain is more out there than what we are discussing here. He is the businessman and he is not running business out of emotion. You may accuse him that he has given problem to lenders. But he is also waiting.
Bad debts are also there in steel, cement. I have sold my cement to some developer who has gonecaput. So, I sit in bilateral discussion that you owe me Rs 10 million but give me Rs 7 billion, make some arrangement and then the matter ends there. I am not coming under any questioning.
What is the point in keeping me aside of the game and then have only 4-5 guys who acquire their assets. By this process, it is dis-service to banking industry as they will not recover best possible price for the asset which are under auction.
If you take Sahara where Amby Valley is being auctioned, are we saying that Sahara can’t participate in it if he has money? Why there is no buyer for Amby Valley for any price? When the new bidder comes in play for a complex asset or even for powerplant, it is very difficult to buy a messy asset which is gone through problems to buy a good asset. India is a complex country and they don’t want to get in messy asset. So, you want to have a Posco like company buying on their own. They will join hands with the Indian promoter.
Doesn’t it a signal for the future courses of actions across various sectors?
Let’s not be emotive about it. There is no credit culture globally. There is borrower and lender. From last 30 years, you were lending to the same promoter. So, how come his character has changed from last three years? Essar has never paid in past too.
If bank forgive large promoters for 30 years, so can today they should persist in doing so?
Are the bankers are under compulsion that they are lending to big names?
There is political compulsion.
But did the political shop closed completely for those compulsions.
They are trying to take away all the influences.
We are taking the away all the discretion which the promoter had undue influence on the bank, so that is all out, and we are putting it into NCLT, right? Same promoter, may be of different class may have not defaulted in last five years. What is the guarantee that new guys will not default?
There is no denying that the baby will get thrown out by the bathwater, but bathwater is stank.
My point is for the minority shareholder, for the people who have left out in this whole game and no one is talking about them.
In last 3-4 months, the noises are being raised that rogue promoter is not to be allowed to participate in this whole process and they should be debarred. There were tweets and all other things to put pressure on the government. The government succumbs under this pressure because they say that there is political compulsion to do it. There is no economic and business rational to debar anyone. Let’s not be emotive and say that if I get the best price available then I should go ahead, whosoever it may be. So, long as somebody is putting the money on table and I don’t have to give a restructured loan.
You are saying that the companies’ shares are being traded and they are in NCLT, so the trading should be suspended. But what happens with the minority shareholder? He is also the capital provider.
Suppose for some reason, it comes to be known that there is to be NCLT proceedings and there could be resolution in the company, share prices may go up. Since, it is listed company you have to make it an open offer and my price of acquisition may go up. Is it not an unfair game? On the first side, you kept the promoter out that I can put a Rs 5 bid, promoter could have put a Rs 7, so I reduce the bid price to Rs 5. Then I come back and say that being a listed company, the share should be suspended.
We are not able to protect the institutions that they ought to be for.
Because they come out with funny solutions. This is a funny solution. This will be challenged in the court by promoters.
There is commercial merit that if he is bringing the money, then what is wrong with it? Although, he may have defaulted you before. We are innocent, unless we proved guilty.
Have you proved them guilty criminally? It’s a civil offence.