Centre set to put Pawan Hans sale on hold over winning bidder concerns

The government of India is likely to put on hold the sale of state-owned helicopter service provider Pawan Hans indefinitely as one of the members of the winning consortium has received an adverse court order.

This is the second instance where a disinvestment exercise has been put on hold after completion of the process due to allegations against the reputation of the winning bidder.

The government had earlier paused the privatisation of Central Electronics Ltd (CEL) as allegations were raised that the winning bidder Nandlal Finance and the other shortlisted bidder JPM Industries Limited were inter-related.

It is learnt that Almas Global Opportunity Fund — a Cayman Islands-based fund managed by Dubai-based Almas Capital — is under scanner due to its past record. It has been prosecuted by the National Company Law Tribunal (NCLT) as it didn’t pay the requisite money and put the insolvency process for a Kolkata-based power transmission company EMC Limited in jeopardy despite being declared as the successful bidder.

The Kolkata bench of the NCLT on April 20 had ordered that action be taken against the management of Almas Global Opportunity Fund under Section 74 (3) of the bankruptcy code under which officials of a successful bidder can be imprisoned for a minimum of one year with a maximum tenure of five years. They will also be fined with a maximum penalty of up to Rs 1 crore.

“The Successful Resolution Applicant (SRA) and its officers responsible be proceeded against for contravention of the approved resolution plan in terms of section 74(3) of the Insolvency & Bankruptcy Code. To facilitate this, a copy of this order shall be sent to the Insolvency & Bankruptcy Board of India (IBBI) and the Secretary, Ministry of Corporate Affairs, who are the agencies authorised to initiate an appropriate complaint, “the NCLT bench said in its order saying that the fund has taken the entire process for a ride.

Only nine days after the NCLT order, a cabinet committee of ministers had approved 51 per cent stake of Pawan Hans along with management control to Star9 Mobility Pvt Ltd — a three-member consortium among Big Charter Private Limited, which operates a regional carrier called Flybig, Maharaja Aviation Private Limited, and Almas Global Opportunity Fund SPC. The consortium had quoted a price of Rs 211 crore.

The remaining 49 per cent is held by Oil and Natural Gas Corporation (ONGC).

The government had said that while it had got three financial bids only that of Star9 Mobility was above the reserve price of Rs 199.20 crore. It didn’t disclose the name of the other two bidders.

“We are examining it legally. We haven’t issued a Letter of Award to the successful bidder yet,” Tuhin Kanta Pandey, secretary of Department of Investment and Public Asset Management (DIPAM) — the nodal agency of the government’s disinvestment process, said.

According to Dipam’s guidelines, an entity will be disqualified if the company or its directors are facing any conviction by a court of law or indictment or adverse order by a regulatory authority which casts a doubt on its ability to manage a public sector unit when it is privatised.

Disqualification of the fund will jeopardise the process as it is only due to its net worth, the consortium had fulfilled the eligibility criteria of minimum net worth of Rs 300 crore. Almas holds 49 per cent stake in the company, while Big Charter and Maharaja Aviation hold 26 per cent and 25 per cent respectively.

The other two companies, Big Charter and Maharaja Aviation, which are loss-making, qualified as they are Air Transport Providers and hold valid licenses from the DGCA.

Two weeks ago, the Indian National Congress had raised questions over the bidding process of Pawan Hans questioning the credentials of the winning consortium and said that the company was undervalued.

The EMC Case

Sources said that EMC Limited was admitted to NCLT in 2018 after defaulting on loans worth Rs 6,500 crore. In October 2019, the Committee of Creditors (CoC) led by State Bank of India approved the resolution plan proposed by Almas Global Opportunity Fund, which proposed to settle the outstanding dues of the banks and revive the company by infusing around Rs 568 crore. The entire payment was to be made within 60 from the date of approval of the resolution plan.

However, despite repeated reminders and prodding by the CoC, Almas didn’t pay any money other than Rs 30 crore as bank guarantee.

In January 2021, the bank appointed resolution professional Kannan Tiruvengadam moved the NCLT against Almas Global Opportunity Fund for contravening the resolution plan.

“There was no other way as despite repeated reminders the fund was bringing up excuses and didn’t pay anything. So the resolution professional moved the court to cancel the bidding process and restart again,” said a person involved in the process.

A fresh Expression of Interest for EMC Limited was called on 11 May.

Queries sent to Almas Global Opportunity Fund were not responded to. However, a board member associated with the fund told Business Standard that they were worried about making payment as the resolution plan despite being approved by NCLT were being legally challenged by other financial creditors like LIC Housing Finance and Union Bank of India.

Almas, he said, also asked the lenders to release security interest over the assets of the company. However, banks refused as under the resolution plan the charges over the assets of the company could only be released after the upfront payment by the winning bidder.

“There were multiple issues which came to light after the deal was closed. We do not agree with the NCLT’s view and in our view the process isn’t over yet,” he said when asked if the fund is looking to challenge NCLT’s order.

He also said that the firm was committed to reviving Pawan Hans as it sees opportunity in the future of the helicopter business which is seeing heightened interest from the government. He said that the firm has been looking at Pawan Hans since the privatisation process began and was scouting for local partners.

“The firm has significant exposure in India and Pawan Hans is the second company in the aviation sector where we have invested. We have also invested in a Spanish gyrocopter company,” he said.

Industry experts that Business Standard spoke to say that turning around Pawan Hans which currently has a fleet of 42 helicopters will require significant investment as most of its fleet are old.

They said that this was one reason why most of the established helicopter companies stayed away from the bidding for the PSU.

“Pawan Hans requires significant investment and expertise for a turnaround. The helicopters are over 20 years old which has proved to be a big hurdle for them to win contracts,” a CEO of a helicopter company said adding over the few years the company has even lost out on contracts from ONGC which owns a 49 percent stake in the company.

“Global Vectra, which is the clear market leader in helicopter business, has been winning most of the ONGC and state government tenders for VVIP transport. It will require a complete change in fleet, management, and a strategic business plan to turn around Pawan Hans,” he said.

The previous three attempts to sell the helicopter company resulted in failure. For the fourth attempt which started in December 2020, the government had significantly diluted the terms of sale pertaining to employee retrenchment, asset sale, and tax liability.