IL&FS lenders looking at a 10-15% haircut; BoI, SBI, PNB & Yes Bank staring at a hit: Report

Lenders to the beleaguered IL&FS group are looking at a 10-15 percent haircut in many of its projects as buyers will bargain hard, The Economic Times reports. A group of banks, led by Bank of India (BoI) and State Bank of India (SBI), have lent IL&FS Rs 34,480 crore, which is a part of its consolidated debt of Rs 91,000 crore.

BoI has the highest exposure to the debt-ridden firm with loans of Rs 2,388 crore, followed by SBI at Rs 2,140 crore and Punjab National Bank at Rs 1,859 crore. Yes Bank has the largest exposure within private sector banks, with loans worth Rs 1,841 crore, as per a Kotak Institutional Equities report.

Experts believe the Centre’s decision to overhaul the company’s board and appoint a new, six-member team led by Uday Kotak, has improved the lenders’ chances of recuperating their money, but haircuts are unavoidable, the report said.

The loans will be restructured and the asset monetisation process will lead to a delay in payments, Abizer Diwanji, Partner, Financial Services at EY, told the paper. “You also have to consider the mark-to-market losses on these loans. It is fair to assume some haircuts for lenders in the short term,” he added.

The National Company Law Tribunal (NCLT) has ordered the newly-formed board to meet on or before October 8. The board is yet to come up with a financial plan which will include monetising some assets and restructuring loans.

A banker with a UK-based bank which has an exposure of about Rs 200 crore told the paper that they are confident of recovery, now that the government has stepped it. They also deemed it premature to assume a haircut at present as government intervention has boosted creditor confidence.

Others in the banking industry said open projects on the ground which can be monetised give the lenders confidence. Calling it a short term liquidity issue, bankers think this problem can be resolved through capital infusion and loans by government-backed entities. Also, there are many interested parties for IL&FS’ roads, power and energy-linked projects.

“Once the liquidity issue is resolved, the board will get more time and they can take a few months to a year to offload some projects,” a banking official told the paper.

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Union Bank of India moves NCLT against Gammon

Union Bank of India has approached the dedicated bankruptcy court against Gammon India Ltd for a default of about Rs. 315 crore as financial woes mount on the infrastructure and engineering company. Mumbai-based Gammon India had failed to repay a term loan and interest, totalling Rs. 315 crore, to the state-run bank.

According to the bank, the infrastructure company first defaulted in October 2015. Subsequently, the lenders had initiated various methods to recover the dues, including Corporate Debt Restructuring (CDR) and Strategic Debt Restructuring (SDR).

BSE-listed Gammon India owes around Rs. 7,000 crore to its lenders, including Union Bank of India.

The company incurred consolidated net loss of Rs. 1,153.77 crore on net sales of Rs. 1667.62 crore, according to its FY17 results.

The Mumbai bench of the National Company Law Tribunal (NCLT) presided by M.K. Shrawat will hear the case on 27 September.

“The Term Loan Consortium Agreement (TLCA) was executed between Gammon India Ltd and United Bank of India as the Lead Bank and Union Bank of India on January 28, 2013,” said the lender in its petition filed in the tribunal, which was reviewed by Mint.

Gammon’s troubles began after February 2018 when the Reserve Bank of India (RBI) put an end to restructuring of loans outside bankruptcy courts and set tight deadlines for companies that are just slipping into default. It said all cases above ₹ 2,000 crore have to be settled within 180 days, failing which they have to be taken to the bankruptcy courts.

Emailed queries to Gammon, as well as Union Bank of India, remained unanswered till press time.

When contacted, Nishit Dhruva, managing partner of law firm MDP and Partners, and Prakash Shinde, partner of MDP and Partners, who is representing the bank in the dispute, confirmed the development, but refused to divulge further details since the matter is subjudice.

“It is a challenge for the lenders to find buyers for infrastructure or EPC companies as a whole, especially if there are onerous contracts in the company. However, they will get buyers for specific profitable projects of these companies,” said Ashish Chhawchharia, partner and head of restructuring services, Grant Thornton. “In most cases, the companies have little or no tangible assets and lenders’ sacrifice may be high for such companies.”

Founded in 1922 by John C. Gammon, the company was instrumental in building many landmark structures in the country, including the iconic ‘Gateway of India’, the country’s first cable-stayed bridge at Akkar in Sikkim, Hebbal flyover at Bengaluru and also India’s longest Span Cantilever bridge in Meghalaya.

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IBC resolve large amount of NPA, Banks recover more than half of their money

Creditors have recovered Rs 49,783 crore, or almost 56% of their admitted claims, from 32 stressed companies where insolvency resolution plans were approved by the National Company Law Tribunal (NCLT) by the end of June, showed data compiled by the insolvency regulator.

Despite the average 44% haircut that the creditors in general had to take in these cases, analysts said the Insolvency and Bankruptcy Code (IBC) has performed much better than the earlier system where the recovery process was strenuous and yielded too little. Of course, the headline numbers are good primarily because of Bhushan Steel, which accounted for close to 64% of the total claims by these 32 firms and an equal amount in recovery.

Financial creditors, such as banks, have managed to recover Rs 47,768 crore, or a little over 55% of their claims, showed the data by the Insolvency and Bankruptcy Board of India, compiled on the basis of the inputs provided by resolution professionals (RPs). Operational creditors — including raw material suppliers — have received Rs 2,015 crore, making up for 61% of their claims.

Financial creditors, expectedly, made up for the bulk (96%) of the total claims admitted by RPs. “The IBC is way better than the earlier system, where recovery used to take a lot of time, and wherever a one-time settlement took place, the amount was usually not more than 20-30%. Also, many stressed firms were allowed debt restructuring, which further worsened their state of health. In contrast, the IBC stipulates a time-bound resolution of default cases, which is good,” said Manoj Kumar, partner and head (M&A and insolvency resolution services) at consultancy Corporate Professionals Capital.

However, analysts said the ratio may change for the worse in the coming weeks once the resolution process of some of the large stressed companies such as Bhushan Power and Steel, Lanco Infratech and Alok Industries are factored in, as haircuts in these cases are expected to be much higher. For instance, against the admitted claims worth Rs 47,000 crore by financial creditors, the highest offer (by JSW Steel) is only Rs 19,350 crore. Lanco Infra, with Rs 45,263 crore in debt from financial creditors, is feared to be heading for liquidation as the lenders have reportedly rejected an offer. In case of Alok Industries, against the debt of Rs 29,500 crore, Reliance and JM Financial have placed a joint bid of only Rs 5,050 crore.

Nevertheless, once these old cases — where chances of a grand turnaround without massive investments are remote — are settled and new cases come in, recovery would be much higher, a senior government official said. This is because creditors can invoke insolvency proceedings against defaulting firms very early when chances of turning them around would be much higher and easier.

Interestingly, in nine of these 32 cases, insolvency proceedings were triggered by the corporate debtors themselves, while 14 were by financial creditors and nine by operational creditors. As many as 12 cases were handled by the NCLT’s Kolkata bench, and eight by the Mumbai bench.

Source- Financial Express

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