10 Feb 2018 14:46 IST

IBC cases: No haircuts for banks in these ‘value propositions’

Bids from strategic buyers come in above the actual dues to lenders

While the status report of Insolvency and Bankruptcy Code (IBC) cases highlighted in the Economic Survey is disappointing, a few cases appear to be drawing good interest from strategic buyers.

Binani Cement, where the lenders have made a claim of about ₹4,000 crore, has been a case in point, where bids have come in at upwards of ₹5,000 crore. According to Edelweiss ARC, which filed the case under NCLT for resolution, Binani Cement’s solid assets have been a big draw for serious bidders.

“We are receiving bids over and above the debt, hence, there is no haircut,” says Siby Antony, Chairman, Edelweiss ARC.

Jalan Intercontinental Hotels Private Limited has been another account, which Edelweiss ARC has acquired at a book value from the banks (no discount). “The company owes lenders about Rs. 90 crore-plus, while bids will come above ₹125 crore,” says Amit Agarwal, Executive Vice-President - Stressed Assets Investments, Edelweiss Capital. The account was acquired by the ARC at 20:80 basis – 20 per cent upfront cash and 80 per cent through security receipts.

Why the interest

According to market players, for genuine businesses with solid assets and sound prospects, strategic buyers are willing to pay a good price.

Binani Cement, for instance, has 378 million tonnes of limestone reserves that can cater to the requirements for the next 30 years, according to Edelweiss ARC, which has been able to acquire 69 per cent of the company’s debt from 14 banks.

After extending ₹100 crore as interim finance, the asset reconstruction company has seen a marked improvement in operational performance of the company. Binani Cement, admitted under NCLT for resolution, has been garnering good interest from buyers.

Jalan Intercontinental Hotels is another small but good property that has been seeing a lot of buyer interest, with the Taj Group of Hotels being one of them.

However, IBC may not work for all cases. In fact, there are many accounts that have seen successful recovery and good buyers outside of the IBC framework, too.

Karaikal Port and Vega Mall accounts bought over by Edelweiss ARC from lenders, are classic examples.

Win-win for all

Vega Mall, in a prime location in Bengaluru, had only 20 per cent mall completion pending when Edelweiss ARC acquired the debt. Delay in construction due to design changes and delays in obtaining approvals had led to the project cost overrun.

“Banks were unable to find a buyer on as-is-where-is basis for the incomplete mall under public auction which failed even at very low reserve prices,” says Amit Agarwal. After infusing Rs. 60 crore funding for completion of the project and monitoring its progress closely till opening of this mall earlier this year, Edelweiss is now receiving interest from bidders quoting ₹500 crore in value for the property; Edelweiss ARC had bought 55 per cent of the debt amounting to ₹220 crore.

In the case of Karaikal Port, Edelweiss ARC has been able to acquire 96 per cent of the debt from nine banks. The deep-water port in South India, developed under a 30-year BOT concession agreement in 2006, was saddled with regulatory issues in handling dusty cargo (coal/ limestone) without mechanisation and non-availability of funds for timely maintenance dredging.

“Close monitoring of the fund utilisation, providing timely cashflow assistance and ensuring focus on marketing & asset utilisation has led to a turnaround in operational performance and improved the cargo traffic,” says Amit.

To avoid cluttering of cases under NCLT, the industry needs to filter out cases that could be resolved outside of IBC, too.

However, the balance of power has now shifted in favour of lenders, and when strategic value gets created in an asset, if the existing promoter/management do not re-finance/repay the loans in timely manner, IBC as a tool can be very powerful in selling such assets and realising the cash flows for the lenders, adds Amit Agarwal.