Neither the blazing sun nor the worst dust storm of the season could curb the rage and agony of the Jaypee homebuyer, who hit the streets over the weekend to protest the possible liquidation of the company — Jaiprakash Infrastructure Limited, or JIL — which has still not given them their homes.
This story is depressing. On May 2015, hapless homebuyers across the country and specifically in NCR came out in large numbers to protest the unacceptable delays and rampant malpractices in India’s real estate industry.
The emotional and financial pain was palpable given that the buyers had paid up 80-90% of the cost of the units and were yet to receive them. Jaypee Group was the single largest defaulter among all builders followed closely by Unitech, Amrapali, 3Cs and BPTP, among others. Actually, the list of such builders is long.
Three years later, despite the consumer-friendly Real Estate Regulation and Development (RERA), despite a well-defined insolvency and bankruptcy code (IBC), 18,000-plus Jaypee Group homebuyers face the possibility of the company going into liquidation, with their financial rights stuck at the bottom of the recovery pile. Not even in their dreams would have these buyers imagined that the entire governing system of the country would fail them so miserably.
Look at the circus we have been witnessing over the past nine months since IDBI Bank dragged Jaypee Infra to the National Company Law Tribunal (NCLT) after the company defaulted on a loan of Rs 526 crore. Right then and there, homebuyers were left out in the cold.
The process of insolvency is meant to make it easier for various stakeholders to stake their claim. Except for the homebuyers. They ran helter-skelter for weeks, clueless about the forms they had to fill. Was it Form B or C? Wait, it’s neither. It’s a new one named Form F that has been specially designed for them.
Since then, for every battle, big or small, the homebuyers have had to move the Supreme Court and take on some of the most powerful lawyers of the country representing the Jaypee Group and an army of lawyers sent by lending bankers. But to what end?
Running Out of Options
Nine months later, they’re worse off than before, facing the horrifying thought of the Jaypee management back in the driving seat after bankers rejected the Rs 7,350-crore offer by Lakshadweep, a joint venture between Suraksha Asset Reconstruction and Mumbai builder Dosti Realty, to acquire JIL.
So what went wrong?
First, it was all the noise surrounding the resolution process and systematic leaks by bankers that the bids from the bidders were hugely undervalued. The most touted example used to justify this theory was that of Yamuna Expressway and its net present value (NPV) of more than Rs 15,000 crore. Those arguing the case cited a valuation exercise done by the lenders consortium in mid-2017, which estimates toll collection from the Expressway at about Rs 68,000 crore during the concession period of April 2018 to August 2048. A discounting factor of 8% was then applied to arrive at the above-mentioned NPV.
But this entire argument has a gaping hole. Nowhere in the world is a distress value or liquidation value of a business the same as that of an ongoing concern calculated through the optimistic lens of lenders.
While the final bid by Lakshadweep has not been made public, I’ve gleaned from sources that the average of two independent valuations undertaken under the resolution process for Jaypee Infra stands at Rs 7,806 crore. The Lakshadweep consortium’s offer was the closest, but fell short of this figure.
Second, the high melodrama by Manoj Gaur and team trying to wrestle their way back into the company may have influenced the opinion of key stakeholders. From hiring high-profile and expensive lawyers like Mukul Rohatgi to his own teary-eyed act at the Supreme Court hearings to defying laws under IBC, which bar promoters from making any sort of bid, Gaur and his group have left no stone unturned to wriggle their way back into the business.
Imagine the audacity of submitting a revised proposal of Rs 10,000 crore to creditors, a week before the 270 days were to expire on the resolution! Add to that the sweeteners such as 2,000 shares on registration and absorbing 50% of the stamp duty on registration offered to woo the buyers onto their side.
Is that confusing for the homebuyers? Of course it is, especially when they have also promised to complete and deliver all apartments in 42 months compared to the 60 months the Suraksha-Dosti JV has sought.
What happens now?
A section of the homebuyers is pushing for the return of the Jaypee management. But I will side with the buyers who are opposing such an event. To the former lot, I would request them not to make a terrible mistake.
Don’t forget that this is the very management that has broken multiple promises and brought upon you the financial misery of bearing both EMIs and rent for almost 10 years. This is the very management that diverted 858 acres from JIL to secure a loan from ICICI Bank for parent company JAL. Today, if that land parcel was still with JIL, Lakshadweep’s bid could easily have been higher by as much Rs 4,000 crore and crossed the magic number of Rs 10,000 crore in valuation.
This is also the same promoter group that has missed multiple deadlines of submitting the Rs 2,000 crore ordered by Supreme Court to refund the buyers.
If Manoj Gaur and team had enough assets to repay the Rs 9,000 crore they owe banks and complete your homes, they would have done it a long, long time ago. They are desperate to come back because of the immense value of both land parcels in and around the Expressway and the lucrative toll revenue potential after the new airport at Jhewar is commissioned.
The Ball is In Supreme Court
May 16 is a crucial date. The case is listed for 2.30 pm, which indicates that the Supreme Court bench wants to give it a fair bit of time. Given that the courts also go on a 45-day summer leave and as NCLT cannot take any step without the Supreme Court go-ahead on JIL’s failed insolvency resolution, the outcome of the hearing will be important.
The apex court has already made its stand very clear last week – Jaypee Infra cannot go into liquidation. Bankers know that too. And they are perhaps only looking for a court protection to accept the Suraksha-Dosti JV offer of Rs 7,350 crore, which is lower than the independent valuation.
So the Supreme Court can take two views. One, it upholds the Suraksha-Dosti bid. This JV seems to have secured a guarantee of Rs 3,500 crore from Yes Bank for completing the flats. The JV also seemed to have built in a cushion of Rs 1,500 crore for any repayment liability that the court might order for further refunds apart from what it has offered lenders as a combination of upfront cash, debentures and land monetisation proceeds.
The quickest resolution to this saga would be for the court to include a few more conditions in favour of the buyers such as faster delivery of flats, reasonable delay interest and then allow the Suraksha-Dosti JV bid to go through.
The second and only other option is more extreme. The Supreme Court can direct the central government to step in, take over the stuck realty assets and bring in an able body, say, NBCC, with construction experience to complete the flats. It can be done, but NBCC will need money to complete the projects.
How much is still not clear because multiple figures are floating around, including what needs to be collected from the buyers as the remaining payment. But suffice it to say that if Noida Authority can be compelled to recognise its complicity in this mess and hand over up to 1,000 acres to NBCC, the monetisation will match up.
After all if the Noida Authority had played its role of a watchdog and rescinded the Jaypee Group’s building permits and licences when the projects were unduly delayed, this day would not have come.
So the Uttar Pradesh government will have to pitch in as well. It has plenty of land in the area to make it happen. Lenders can then go ahead and liquidate the Yamuna Expressway, which is what they seem to be gunning for any way.
I know the second option is nothing short of asking for the moon. But why not? I’m going to do just that on behalf of the hapless homebuyers. After all, the aim behind taking Jaypee Infra to insolvency over a Rs 526-crore loan default itself raises many questions on underlying political motives. So let there now be a resolution, driven right from the top.
Manisha Natarajan is Group Editor, Real Estate and Urban Development,