Stressed firms race to sell assets

Jaypee, Essar, and Reliance Communications expect transactions to close by September

With the Reserve Bank of India (RBI) identifying 12 companies for the Insolvency and Bankruptcy Code (IBC), the stage looks set for financially stressed companies to fast-track their asset sales so they can repay debt on time. 

Among large accounts, Jaypee group, Essar group, Reliance Communications and Videocon have announced transactions to reduce debt but these deals have not closed as yet. "Even before RBI action, promoters and banks were in discussions to find an amicable solution to reduce debt. Everyone wants to end this issue fast as it takes away the management's focus from businesses. Few companies fell into the debt problem due to external reasons like natural calamities or adverse court judgments in India," said a promoter of a large company on Wednesday, asking not to be named. "A liquidation would simply lead to more job losses at a time when most of the stressed companies are reducing workforces," he added. 

With a timeline put in place under the IBC, promoters of stressed companies are a worried lot. In stressed companies defaulting on repayment, banks can appoint a professional, who will come up with a revival plan within 180 days, which can be extended by another 90 days. If a workable solution is not arrived at, the company could go into liquidation. 

Even before RBI action on Tuesday, many stressed companies announced they would sell their assets.  Take, for example, the Essar group, which announced in October last year that it would sell its Gujarat-based oil refinery and power plants to Rosneft of Russia for $13 billion. The deal would reduce group debt by half as the entity closes the transaction in the next few weeks. At the same time, the group plans to infuse Rs 2,400 crore of fresh equity into Essar Steel, which became a non-performing asset (NPA) on the books of many Indian banks. Of the fresh equity, Rs 1,600 crore will be infused by private equity firm Farallon Capital and the rest by the Ruias. The Farallon deal missed the March deadline, making the banks nervous.

The good news, said a banker, is that few promoters are themselves coming forward with plans to sell assets. Reliance Communications, which received a seven-month reprieve from banks early this month under Strategic Debt Restructuring, expects to close the sale of its telecom tower arm to Canadian pension fund Brookfield for Rs 11,000 crore by September. It has also hived off its wireless telephony business to a new company called Aircom, which would be merged with Aircel and this would help reduce its debt by Rs 14,000 crore. With these two transactions, the company's debt will reduce by 60 per cent, Reliance Group chairman Anil Ambani told reporters early this month. The group has also promised to sell its undersea cable arm, Global Cloud Xchange, and land bank near Delhi and Mumbai, to repay its debt of Rs 45,000 crore.

Other groups are also taking steps. An official at UltraTech Cement, an Aditya Birla group company, said they are expecting to buy cement units from Jaypee group in the current quarter, which would reduce Jaypee's debt burden by almost Rs 16,189 crore.  The Videocon group has also initiated the process to sell its Kenstar brand so as to repay its domestic debt of Rs 22,000 crore. 

Meanwhile, the shares of many stressed companies declined in early trade due to RBI action but recovered later in the day.