While the conclusion of the sale of Bhushan Steel to Tata Steel via the Insolvency and Bankruptcy Code (IBC) process is confirmation that the insolvency process is working, it is too soon to conclude this is the best way to dispose of distressed assets. Indeed, going by steep haircuts, of between 50-80%, that bankers would need to take for the top 12 companies, prospective buyers are getting themselves very good bargains.
Take the case of Jaypee Infratech, where one of the bidders is offering Rs 3,500 crore to the lenders to complete projects and another Rs 1,070 crore. This, together, is a little over half the principal of Rs 8,500 crore that the company owes to the lenders. More important, the buyer is also expected to get a part of the land banks that Jaypee Infratech owns. Under the circumstances, it would make sense to liquidate the assets, if they fetch the estimated value of Rs 14,000-15,000 crore rather than hand the company to the bidders or the promoters.
Again, the National Company Law Tribunal (NCLT) bench has done well to question how the liquidation value for Monnet Ispat, which has a capacity of 1.5 million tonnes, has been estimated as just Rs 2,600 crore. The liquidation values for other companies—such as Alok Industries—is surprisingly low, as independent valuers have pointed out. Indeed, Arcelor Mittal’s caveat that it would make good the dues of Uttam Galva, in which it is a promoter, only if gets control of Essar Steel, should also not be accepted. Going by the law, Arcelor Mittal is ineligible to bid until the dues of Uttam Galwa are cleared.
While the IBC is evolving, and the various benches of the NCLT are well within their rights to interpret the law, some decisions are disconcerting. It is hard to understand on what basis lenders are being directed to entertain late bids, as is the case in Bhushan Power, where the bid by Liberty House came in well past the deadline of February 8. A late bid—in this case late by over a week—would put those that met the deadline at a distinct disadvantage since the terms of their offer could have leaked.
However, in the Monnet Ispat case, the NCLT bench has questioned the resolution professional on how the Gare Palma coal mines were listed as part of the company’s assets when the licences had been cancelled. This level of scrutiny is necessary and, the tight deadlines notwithstanding, the NCLT benches must ensure the valuable assets are not being handed over to buyers for a song. There is merit in calling for a second round of bids, provided all bidders are allowed to revise their proposals. It is important to ensure that price discovery is efficient.