Lenders to take 56% haircut in the dirty dozen companies under IBC process

Banks to get back around Rs 1,146 bn against Rs 2,564 bn debt

Indian lenders will take a 56 per cent haircut on loans worth Rs 2.65 trillion to the 12 companies identified for resolution under the Insolvency and Bankruptcy Code, 2016, by the Reserve Bank of India (RBI) in June 2017. 

Considering the offers received till now, lenders would be able to recover Rs 1.15 trillion from bidders. Some of the twelve cases are still under litigation. Lenders of Alok Industries would take a the hit of 77 per cent, the maximum among all cases, on their Rs 220-billion debt. Reliance Industries has offered Rs 50 billion for the company.

The lenders of Essar Steel would be able to take home Rs 420 billion on dues worth Rs 490 billion if the National Corporate Law Tribunal (NCLT) approves ArcelorMittal's offer. If the courts agree to the offer made by the promoters of Essar Steel, then the lenders would end up recovering 100 per cent of their debt. Both ArcelorMittal and the Ruias are expected to litigate on this matter.

In five cases, Lanco, Era Engineering, Jaypee Infratech, ABG Shipyard and Jyoti Structures, the lenders are still awaiting resolution for the lack of good offers. In a few cases, there were single bidders who could not come up with attractive offers. In the case of Jaypee Infratech, the Supreme Court has ordered re-bidding and also an audit of the company.  
 

Lenders are hopeful that by the end of the current financial year, they would be able to find a resolution plan for all the cases.

  

The bankruptcy code has been mired in controversies and litigation from day 1. The continuous amendments to the law further complicated the matter for all the stakeholders, viz. bidders, promoters and lenders. Corporate lawyers said changes in the law to keep promoters and their relatives out of the bankruptcy process saw many promoters losing control over their companies.  

It was a wake-up call for many chronic defaulters. The Supreme Court order in the Essar Steel case made it clear to all the bidders that without paying past dues, it would be difficult to bid for a company undergoing the IBC process, said a lawyer asking not to be quoted.

The Supreme Court judgement in the Jaypee Infratech in August this year was also a landmark one as the committee of creditors (CoC) had to include home buyers kept outside the process. The company was sent for re-bidding by the court after Jaypee promoters deposited Rs 7.5 billion with the court. The company had received offers from Vedanta, JSW group and from the promoters of Sun Pharmaceuticals and they are expected to bid again for the company.