Jayaswal Neco case to help bankrupt cos, lenders to resolve debt faster

Lenders may sign out-of-court settlements with other bankrupt companies, ARCs

The recent debt resolution of Jayaswal Neco Industries, one of the first companies sent to bankruptcy courts, has opened a fresh avenue for bankrupt companies to get control of their companies – provided 90 per cent of its lenders agree to sell their loans to the asset reconstruction companies.

Jayaswal Neco, a Nagpur based steel castings firm, won a reprieve with the Asset Care & Reconstruction Enterprise (ACRE) buying the company's debt from the lenders and its lenders agreeing to withdraw the bankruptcy proceedings.

The company was sent to the bankruptcy court in 2018 after it defaulted to its debt worth Rs 5,589 crore.

“This type of out-of-court restructuring can be used by other companies under the Reserve Bank of India’s (RBI) June 2019 circular. They can also do the settlement if the company has been admitted into the insolvency process, however it requires 90 per cent of the financial creditors to agree to withdraw the case,” said Nikhil Shah, managing director and Lead, turnaround and restructuring of Alvarez & Marsal, a professional services firm.

Ramesh Jayaswal, the promoter of Jayaswal Neco India, will continue post restructuring and hold 48 per cent stake in the company, down from 69 per cent earlier. ACRE will hold 31.44 percent stake while the rest will be owned by the public. The promoter’s entire stake will be pledged with the banks.

“This deal demonstrates that out-of-court restructuring can be successful for all parties involved including the company, shareholders, original lenders (banks) and new investors (credit funds). It was not necessary to take this company into insolvency,” Shah said.

In fiscal 2018, State Bank of India filed an insolvency application against the company in the National Company Law Tribunal following the rejection of the company's debt restructuring plan by the Reserve Bank of India. JNIL, in turn, filed a petition in the Supreme Court, which directed the NCLT to maintain status quo in the insolvency process initiated against the company. Early this month, Jayaswal Neco withdrew its petition in the Supreme Court after banks agreed to sell its loans to the ARC.

With this settlement, the company has become one of the largest pre-insolvency financial restructuring transactions in India and is also the first transaction in which the Competition Commission of India (CCI) has approved acquisition of more than 25 percent equity stake of a company in a pre-insolvency restructuring transaction.

Experts said the restructuring agreement with ACRE is expected to improve the cash flow position of the company, lead to realignment of debt to a sustainable level and reduction in financial leverage, which would result in reduction of financial stress. “This deal showcases successful turnaround of an operating company without going through the perils of a change in ownership and management, wherein the intent of the promoters, the management and the investors were to work collaboratively towards a successful resolution, resulting in a win-win situation for all stakeholders,” said Harkamal Ghuman, managing director, Alvarez & Marsal.

Later, several global special situation investors, including and represented by Asset Care & Reconstruction Enterprise (ACRE), came together to form a consortium and bought the entire debt from the banks in a staggered manner and negotiated a restructuring deal with JNIL.

The company’s shares closed at Rs 22.8 on Friday, up 2.4 per cent.

New shareholding:

Promoters: 48.03%

ACRE:  31.44$%

Public:  20.53%