Insolvency: To avoid auction, Uttam Galva offers 51% of outstanding loan

Uttam Galva Steels has offered to settle the Rs 56.5 billion loan default by paying 51 per cent amount upfront to the public sector banks so as to abort the auctioning of the company’s assets.

The company, part of the Reserve Bank of India’s (RBI) second list of loan defaulters who have been referred to the bankruptcy tribunal for insolvency proceedings, on March 15 wrote to the State Bank of India (SBI), proposing a “one-time settlement” of all dues of lenders “through an upfront payment mechanism”.

SBI is the largest of the 18 banks that have to recover Rs 56.5 billion from the company.

Uttam Galva has offered to pay Rs 28.8 billion upfront to settle with all of them and take the firm out of the insolvency proceedings.

Calls made to Uttam Galva Managing Director and CEO Anuj R Miglani for comments, remained unanswered. According to the five-page letter reviewed by PTI, the company proposed “a one-time settlement (OTS) of the dues of lenders to the extent of 51 per cent of the outstanding claims as on the date of non-performing asset (NPA), that is Q1 FY17”.

SBI has the highest dues at Rs 15.3 billion followed by Canara Bank — Rs 8.6 billion and Punjab National Bank — Rs 6.6 billion.

If the proposal is accepted, lenders would have to take a haircut or write-off 49 per cent of the dues. It may also lead other companies to file similar settlement applications with their lenders, stalling the insolvency and bankruptcy proceedings initiated against 12 big loan defaulters.

In the letter to SBI, Uttam Galva said its loan account had turned into an NPA during Q1 of 2016-17 fiscal year due to adverse operating conditions.

“Being an OTS and not debt restructuring, the proposal doesn’t fall under the requirements specified in the RBI guidelines of February 12, 2018 (on insolvency and bankruptcy proceedings). Hence, the procedure for debt restructuring mentioned in the circular such as independent credit evaluation etc may not be required,” Uttam Galva has said.

Stating that its proposal has minimum payment risk for the lenders as the entire amount is paid upfront, the company said that since the account has already been classified as D1 by the lenders and referred to NCLT, 50 per cent provisioning must have already been done by lenders.

“In this case, an OTS of 51 per cent would not adversely impact the financial performance of the lenders,” it said. “We once again request lenders to consider this proposal as it is in the best interest of all the stakeholders.” In future, “we assure you our complete cooperation in all the matters and reiterate our commitment to address all issues to your full satisfaction to the best of our ability,” it added.

Stating that the company has tried for a resolution in “all possible manner,” the letter said lenders neither accepted a proposal to bring in private equity investor AION Capital Partners nor did they agree to a strategic debt restructuring (SDR) offer.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel