5 years of IBC: Loans taken for telecom, oil assets sank Videocon

The Insolvency and Bankruptcy Code’s journey so far has been a mixed bag. The steel sector turned out to be one of the major beneficiaries of the Code. But insolvency proceedings of large companies like Reliance Communications and Videocon have been derailed, in part due to litigation. The Reserve Bank of India’s move not allowing asset reconstruction companies to bid for stressed assets has further protracted the insolvency process.

Videocon Industries (VIL) - once India’s biggest consumer electronics company - was sent to the bankruptcy courts in June 2018 by State Bank of India (SBI). This was after the consumer electronics-to-oil production company failed to repay debt and banks made claims of Rs 64,637 crore from the company, according to the National Company Law Appellate Tribunal (NCLAT) order in January this year.

VIL’s problems began after it entered the telecommunications (telecom) business and its second generation (2G)-based telecom licences were cancelled by the Supreme Court (SC) in 2012. The telecom subsidiaries of VIL were repaying the agreed-to instalments to a consortium of lenders until 2015. VIL and Bharat Petroleum Corporation also jointly bought oil and gas assets through a joint venture (Bharat PetroResources) in Brazil.

Former VIL executives say the company’s debt was less than Rs 35,000 crore. Since it had availed of loans from banks as ‘obligor/ co-obligor’, its debt had ballooned. Since the oil and gas assets were primarily held by subsidiaries and VIL only had interest by virtue of its shareholding, the company itself had requested to be freed from its obligation as co-obligor. 

“Due to its co-obligor status, all its loans were counted as VIL loans, consequently showing huge dues to banks,” said a former executive, withholding identity.

The company’s operations, meanwhile, suffered. It failed to pay employee dues since 2018, even as a majority of its 6,000 employees were laid off.

VIL’s consolidated profit dipped sharply by over 60 per cent to Rs 416 crore in 2008-09 (year ended September) on net sales of Rs 10,456 crore (down 12 per cent year-on-year).

The next financial year ended December 2011 (15-month period) saw VIL tack up a net loss of Rs 297 crore, which has since kept rising. For the 12 months ended March 2019, the net loss figure stood at Rs 7,448 crore, according to Capitaline, on consolidated net sales of Rs 911 crore.
 

A promoter entity of Vedanta Group, Twin Star Technologies, won the race to acquire VIL by offering Rs 2,962 crore to lenders. But it moved SC after NCLAT set aside Vedanta’s offer and asked lenders’ committee to reconsider Twin Star Technologies’ plan.

According to Vedanta’s plan, the claims of financial creditors have been settled below 5 per cent, while those of operational creditors are hardly 0.72 per cent. The resolution plan was approved by a committee of creditors (CoC) with 95.09 per cent voting share.

The matter is currently before SC after Vedanta appealed against the NCLAT order. Meanwhile, banks received offers from Adani Group to acquire VIL’s consumer durables business, while Reliance Industries evinced an interest to buy its oil assets.

“All eyes are now on SC to give a judgment in the case,” said an executive.

Twin Star has big plans to invest in the semiconductor industry. It sees VIL’s nationwide facilities for the launch of its products.

Interestingly, a recent SC decision in the Siva Industries case to lend heft to the commercial wisdom of lenders has given a fillip to banks’ plans to hand over the company to Twin Star. The apex court has made it clear that the National Company Law Tribunal and the NCLAT must not delay the insolvency process by questioning the CoC’s decision. 

"The lenders have rejected an offer by (VIL) promoters to hand over the company under Section 12A of the Insolvency and Bankruptcy Code, 2016. SBI had, in fact, earlier sought the Reserve Bank of India’s (RBI’s) permission to accept a proposal by the promoters for loan restructuring in keeping with the rules. The RBI had rejected it and the company was sent to the bankruptcy courts, resulting in layoffs,” said a former SBI official.

“Since then, neither banks nor the company have gained a single penny,” added the official.