Lavasa hill city hits dirt; lenders may send company to liquidation

Lenders to Lavasa Corporation are making a last-ditch effort to attract bidders for the eponymous hill city near Pune, seeking final bids before November 20. If the project fails to attract any bidders, then lenders will to send the company to liquidation.

“Several bidders, who had earlier shown interest, are now backing out. With a slowdown gripping the real estate industry, the bidders want to take less risk in the project,” said a banker close the development. The Reserve Bank of India’s diktat to keep the ARCs (asset reconstruction corporation) out of insolvency cases has also taken some bidders like UV ARC out of the race.

Some bidders who had earlier shown interest were Oberoi Realty, Haldiram Snacks, Pune based builder Aniruddha Deshpande, and US fund, Interups.

Bidders are talking to each other for a joint bid so that they can reduce their risk. Bids for the company were postponed when the coronavirus pandemic hit the country. "We do not expect the bids to be aggressive and will be around the liquidation value. The pandemic has hit several bidders in their core business," said a banker close to the development.

Lavasa, a subsidiary of construction major HCC, has defaulted on bank loans worth Rs 7,700 crore, leading to its lenders sending the company to the NCLT in 2018 for debt resolution under IBC 2016. Axis Bank has made the highest claim of Rs 1,266 crore against the company.  HCC itself has defaulted to bank loans and is seeking a restructuring of its loans.

 

Lavasa Corporation was set up as a picturesque hill station near Pune in Maharashtra in 2000 but defaulted to bank loans after the environment ministry issued a stop work order to the project in 2010. Since then, the city has turned into a ghost town with very few tourists visiting it during week-ends. Post Covid, even the week-end traffic has dropped to zero.

Several homeowners, who had booked a house in the city, are either awaiting possession of their house and have joined the NCLT proceedings to get a seat on the committee of creditors. Many others, who had received keys to their houses, have moved out.  

The debt resolution was further delayed when in June this year State Bank of India sought a fresh forensic audit after it noticed several inter-connected transactions among Lavasa’s related parties and said individual audits may not be able to provide a complete overview of company’s financials.  These other entities were providing captive power to Lavasa, apart from running basic transport, maintaining and running the convention centre, and running retail operations within the premises of Lavasa Corporation. A separate company was operating a luxury hotel.

Certain transactions, SBI said, are so complicated that it would be difficult for CoC to interpret the inter-linkages based on individual audit reports for each entity. SBI said a fresh audit would be able to capture such inter-linkages through a consolidated forensic report for all entities.