Stopping promoters' bids will severely impact recoveries: Hemant Kanoria

Banks have to be selective in pushing cases to the NCLT, cautioned the Srei Infrastructure Finance CMD

Kolkata-based Srei Infrastructure Finance is one of the few non-banking institutional lenders to debt-ridden steel companies in the National Company Law Tribunal (NCLT). Srei had submitted an expression of interest (EoI) for Electrosteel Steels from the Reserve Bank of India's (RBI's) first list of 12 companies going through insolvency but did not follow it up with a bid. In an interview with Namrata Acharya and Ishita Ayan Dutt, Srei Infrastructure Finance Chairman and Managing Director Hemant Kanoria explains how pushing firms indiscriminately to the NCLT would have a negative impact on recoveries and why it refrained from bidding for Electrosteel. Edited excerpts:   

Do you see NCLT as the ultimate and only solution to the present non-performing assets (NPAs) problem in the banking sector? 

In one way, the Bankruptcy Code is good because it will bring in resolution. However, banks have to be selective in pushing cases to the NCLT. There is a tendency to push all the cases into NCLT, as there is an expectation that a decision will come one way or the other. But, it is not always the case. As we can see, a lot of complications are emerging. For example, some of the lenders may agree, and some may not, for a particular amount of haircut, and then the company may go into liquidation. Many times, because of the environment, banks do not want to make decisions. That is the reason that many of the companies are pushed into liquidation, which is not healthy. 

Do you think restricting promoters from bidding under the IBC will have a negative impact?

To a certain extent, yes. It was not necessary to bring restrictions like present promoters cannot bid. Bidders will always try to get the best value. If the promoters are there, they would make serious efforts to be in the business and the bids would be better. Also, not all promoters are errant. Our approach is to always trust and support the promoters. In fact, if promoters are not allowed to participate in the bidding process, it will have a severe impact on the present and future recoveries. 

Despite submitting an EoI, why did you not bid for Electrosteel Steels?

Our objective is not to bid and take over a project. We have to see how we are protected as a lender. We had put in an EoI as, initially, we did not see much interest among potential investors. So we thought, if we submit our bid, at least we can bring a partner on the technical side. So that a decision is taken and the company does not languish. When we found there were serious bidders, then we thought our objective was fulfilled.

As a creditor of Electrosteel, do you see Vedanta's bid at about Rs 45 billion as a good deal?

It could have been better. About two years back, we had presented the institutions and promoter a plan whereby lenders would have realised at least Rs 60 billion. Electrosteel had completed phase-I, so we had suggested freezing the debt at Rs 60 billion and there would have been only a minor haircut that lenders had to take. We proposed to support capacity of 1.25 million tonnes of operation and it would have easily sustained a debt of Rs 60-65 billion. Today, bidders will want a sweet deal. 

What is the present status of Deccan Chronicle, which is now in NCLT?

The company is a victim of indecisiveness all around. For the past three to four years, we have been trying to resolve the case through a settlement process. First through corporate courts, then the high court and then again bringing it into NCLT. There is no decision. We don't know whether the company will be pushed into liquidation or whether we can arrive at a resolution. We feel, wherever a resolution is feasible, it should happen. The advantage is that jobs and units are safe. The attitude in the IBC should be to keep the company going. 

You have contested the claim that you are a "related party" rather than a committee of creditors (CoC) member in the case of Deccan Chronicle. What is the basis of this objection?

We are not a related party. If we are a related party, then any of the banks or institutions who have lent money to a company, and where they have gone for part-equity conversion, will become a related party. We only converted 18-19 per cent debt into equity in Deccan Chronicle. That does not mean we relinquished our rights as a lender to the company. By converting debt into equity, you have a better understanding of what is happening in the company. At present, there is no decision at NCLT. We are and we are not a part of CoC. We are arguing and have moved the NCLT that we cannot be treated as a related party. 

Do you think converting part debt into equity in Deccan Chronicle was a mistake?

In hindsight, I think it was a mistake.

What is the status of the Dahej port project where you are a lender?

The Sterling Group was itself having a problem. So we felt the best way to go about was to transfer the project to a new company which can complete it. We decided to invite bids so that the project can be given to whoever submits the highest bid after giving a recommendation to the government. JSW has submitted a bid and we will support the bid. We can take equity or we can also provide debt. All the lenders get secured this way. It is not an acquisition but substitution.