17 Jun 2017 11:55 IST

Steel, infra companies in RBI’s big-debtor list

‘Dirty dozen’ accounts for ₹2 lakh cr exposure

Big companies in the steel and infrastructure sectors dominate the list of 12 large accounts identified by an RBI panel for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC). The collective outstanding debt of these accounts is about ₹2-lakh crore.

Lead banks to these companies will hold meetings of the Joint Lenders Forum (JLF) over the next couple of weeks to hammer out the nitty-gritty of referring them to the National Company Law Tribunal. The Tribunal, in turn, will appoint insolvency resolution professionals to not only draw up a resolution plan for the companies, but also manage their operations.

List not made public

At the JLF, banks are likely to take a call on companies such as Essar Steel, Bhushan Steel, Bhushan Power, Alok Industries, Electrosteel Steels, Monnet Ispat, and ABG Shipyard. According to sources, the other names on the list could include Jaypee Infra, Lanco Infratech, Jyoti Structures and Amtek Auto. However, the Reserve Bank has not made public the list of 12 companies.

BusinessLine could not independently verify the names on the list. Emails sent to ABG Shipyard, Lanco and Jaypee Infratech did not elicit any response immediately. An Essar Steel spokesperson said the company had not received any notice in this regard. Bhushan Steel and others named could not be reached for comments.

The IBC is touted as a speedy process for early identification and resolution of financial distress of companies and limited liability entities, if the underlying business is found to be viable.

The Tribunal will act as the adjudicating authority and deal with the cases related to insolvency, liquidation and bankruptcy.

 

Why IBC

When a firm defaults on its debt, control shifts from the shareholders / promoters to a Committee of Creditors, who have 180 days (which can be further extended by another 90 days with NCLT approval) to evaluate proposals from various players about resuscitating the company or taking it into liquidation.

In February, RBI Deputy Governor Viral Acharya had observed that most of the assets remain laden with such high levels of bank debt that their interest coverage ratio is lower than one; they have little or no capacity to raise funding for working capital and capital expenditures, or to attract private investors to turn them around.

Original promoters — who rarely put in any financing and primarily provide sweat equity — have had somewhat of a field day, facing limited dilution, if any, of their initial stakes nor much of a threat of being outright replaced, he added.

“Both (outcomes) stem from the structure of incentives at our banks and the fact that stressed assets have been an outcome of excessive bank lending, en masse, in a relatively short period from 2009 to 2012, and to a concentrated set of large firms in a number of sectors such as infrastructure, power, telecom, metals (iron and steel, in particular), engineering-procurement-construction (EPC), and textiles,” he said.