Tightening of the Insolvency and Bankruptcy Code (IBC) to keep willful defaulters from bidding for assets has given lenders a short in the arm.
Banks, armed with the new rule, are gearing up to send more accounts to the National Company Law Tribunal (NCLT), especially those that have gone through the strategic debt restructuring (SDR) process in the past two and a half years but failed to find a resolution.
Since the Reserve Bank of India (RBI) issued the SDR guidelines, banks have converted debt into equity in 20 companies
but managed to divest stake only in one company — Adhunik Power. “The SDR scheme failed as there are no buyers for the stressed assets. Promoters are still running the companies
but with lower debt burden. Bankers have not found any takers after they converted their loans into equity,” said a lender.
Of the total 26 companies, Alok Industries, Monnet Ispat and Electrosteel Steels are on the first list sent to the NCLT. Only the loans of Adhunik Power were taken over by Edelweiss at a steep discount. Banks are worried over the fate of Reliance Communications (RCom) — the largest of SDR accounts — whose debt conversion is scheduled in the end of December. “We have to see how we resolve this case, considering the company’s asset sale plans failed to materialise due to a pending case in court,” said a banker.
RCom, with a debt of Rs 38,000 crore, is currently negotiating on the price at which banks will convert debt into equity. While the lenders are not ready to convert the loans at the pre-agreed price of Rs 24.71 a share, RCom is insisting that banks convert at this price — taking into account the RBI guidelines and the reference date of June 2 when the firm went through the SDR process. Banks, on the other hand, want to convert debt into 51 per cent of equity at the current market price of Rs 14 a share. The company has recently defaulted to its bondholders overseas.
In many cases that have undergone SDR, banks have failed to appoint their nominees on the board.
A bank source said they would have to send all these companies
to the NCLT for resolution, as they were unable to find buyers and can’t allow promoters to run the companies.
Once a company goes to the NCLT, under the IBC code, a resolution professional is appointed and the board of directors is suspended. The interim resolution professional then calls for bids and banks agree to take haircuts on loans — sometimes as high as 60 per cent, depending on the bids received.
The bids for steel companies, including Bhushan Steel and Essar Steel, are expected by December. JSW group, Tata Steel and ArcelorMittal, among others, have expressed interest.