Jaypee Infra insolvency: Decks cleared for NARCL to buy first stress asset

Jaypee Infratech deal expected to close by early Nov

The decks have been cleared for government-backed National Asset Reconstruction Company (NARCL) to acquire its first stress asset, as no counter offer was made for its bid for Jaypee Infratech. 

Senior bank executives said no bids were received under the Swiss challenge, which was scheduled on Thursday. 

Now, banks will issue a letter of intent (LOI) to NARCL, which is known as India’s bad bank, in the next few days informing that the asset reconstruction firm has won the bid. This will be followed by internal processing and making payment to lenders for acquiring exposure. NARCL will pay 15 per cent cash and 85 per cent in the form of security receipts, which will be guaranteed by the government.

The transfer of assets to NARCL is likely by early next month.

NARCL had made an offer to acquire Jaypee Infratech loans that are currently held by lenders. A Swiss challenge auction was launched in response to NARCL’s just over Rs 3,500 crore offer for debt of over Rs 9,200 crore held by state-owned banks.

Lenders led by IDBI Bank invited expressions of interest on October 10 and scheduled an auction on October 27. Technically, NARCL has the right to match the successful bid and take over the debt.

This was the first case and, hence, lenders as well as ARC were very particular about following due process. In the subsequent cases, the offer and acquisition is expected to consume much less time, bank officials said.

Interestingly, the finance ministry had last month asked the banks to finalise at least three deals by the end of October. Jaypee Infratech was not on the list of three.

All the offers made by the NARCL are backed by government guarantees for Security Receipts issued by it. This puts ARC at an advantage over any other bidder. Any party interested to make a competing offer has to pay in cash.

The first formal target for NARCL was articulated in January 2022 where banks were to transfer 15 NPA accounts worth Rs 50,000 crore by March. The entity could not reach that target as equity and guarantees came close to year end (FY22). The next target date for transfer indicated was the end of first quarter (June 2022).

The amount for resolution has also declined. Almost Rs 40,000-50,000 crore of assets could be transferred in the first phase before Q3FY23 with the total quantum of transfer at Rs 90,000 crore in FY23 if the system functions smoothly, according to India Ratings and Research.