On May 18, Tata Steel informed stock exchanges it had completed the
acquisition of 72.7% stake in Bhushan Steel (BSL). The company said it was in the process of paying the lenders Rs 35, 200 crore, thus ringing in the first success of the Insolvency and Bankruptcy Code (IBC).
Hopefully banks will also get between Rs 32,000 and Rs 37,000 crore that is being bid by Numetal and ArcelorMittal for Essar Steel. Another Rs 17,000 to Rs 18,000 crore that Tata Steel and Liberty House are offering for Bhushan Power and, finally about Rs 3,000 crore that Vedanta Ltd is offering for Electrosteel Steels.
Read also: Trying to get maximum value from Bhushan Steel's facilities, says Tata Steel
If one adds the potential Rs 7,000 crore that the banks may get for Uttam Galva, the recoveries will aggregate to a handsome Rs 90,000 crore.
To give some perspective on this, all SDRs (Strategic debt Restructurings ) and S4As (Stressed Asset Structuring Schemes) combined didn’t yield more than Rs 1500-2000 crore.
Yet, it is important to note that 10 months after the 12 marquee cases were filed, the banks and the IBC process have only one trophy to show – Bhushan Steel.
All the Rs 90,000 crore ought to have come to the banks in 270 days, that ended on April 30.
Banks will be lucky if they can get one more of these steel cases settled before the April-June quarter runs out as most of the National Company Law Tribunals (NCLTs) have started their two week vacation.
What is worse, there are high chances that some of processes under the NCLT and National Company Law Tribunal (NCLAT) can go awry. For instance, in the Bhushan Power case, NCLT has taken “maximisation of profit” as a goal superior to even the IBC process.
It has ruled that the deadline set by the Resolution Professional is an internal one and should not come in the way of profit maximisation. This is a slippery slope.Tata Steel has challenged this ruling in the NCLAT. If the NCLAT were to agree with the NCLT, the entire bidding process can get vitiated. Companies will watch out for the winning bids and then challenge them after knowing who has bid how much.
This in turn can make bidders bid low and then up their bid at a later stage, which in turn can get challenged by more bidders, all of which can kill the time-bound nature of the process.
The NCLTs, too, are on several occasions, claiming more power than the IBC law allows them.
For instance, in the Binani case, the tribunal said it has inherent powers to ensure if the operational creditors and the non-financial creditors are getting a fair deal. In cases such as Bharati Defence, NCLTs have admitted workmen’s pleas for a fairer deal.
Such observations and admissions can rock the boat since the IBC Act clearly gives the waterfall according to which various creditors will be settled. Questioning this waterfall can skew the entire time-bound nature of the law.
There are a bunch of cases where eligibility under clause 29A is being questioned on flimsy grounds.
Renaissance Steel is challenging Vedanta on grounds of it having been slapped with an over two year penalty for flouting a pollution rule in Zambia. It is challenging also Tata Steel on ground that it is facing criminal proceedings for the death of a worker in a foreign plant.
Another big worry is the bandwidth of the NCLTs. Till date, there are 12 NCLTs to hear around 4,000 cases.
The government has agreed to double the number by September and increase the number of NCLATs from one to three.
But the sooner these are appointed the better. Given the paucity of bandwidth so far, only around 2,000 of the 4,000 cases filed have been admitted. Of the marquee 12 cases sent by RBI in June 2017, only one is settled. Of the 28 cases sent in last December, barely 10 have been admitted and by September 2018, may be, another 100 cases will hit the NCLT because of the February circular of the RBI.
This circular ordered banks that they resolve all stressed cases over Rs 2,000 crore in six months or take them to the NCLT.
That period ends on August 31, and thereafter stressed power company loans to the tune of Rs 1.5-2 lakh crore can come to the NCLT.
This is big money and a lot of public interest, beyond just that of banks. The IBC process needs to get tighter, faster, surer.Yes, for now, the IBC has won one trophy in the form of Bhushan Steel, but there is long hard road ahead.