Insolvency process: Sterling group firms offer steep haircuts to lenders

The group's promoters, being probed for bank loan fraud, are absconding

Sterling Biotech and Sterling Global Oil Resources, through their promoting company Sandesara Group, are seeking to settle their outstanding dues througha One-Time-Settlement (OTS) offer. In letters sent to heads of banks, Sterling Biotech has offered to pay back Rs 24.15 billion of Rs 42.3 billion of outstanding loans, while Sterling Global Oil Resources has offered to pay back Rs 144.2 billion out of dues worth Rs 644.6 billion (at US$= Rs 68.5). 

While Sterling Biotech is currently facing insolvency proceedings at the National Company Law Tribunal in Mumbai, its promoter Nitin Sandesara has reportedly fled after a banking fraud being probed by the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED). 

Business Standard is in possession of copies of the letters, first sent to the Executive Directors of Andhra Bank, dated 8th August and the second to Rajnish Kumar, Chairman of State Bank of India (SBI) dated 9th August 2018. Emails sent to SBI to verify the receipt of these letters by the Chairman went unanswered. 

A corporate lawyer, representing a financial creditor in the Sterling Biotech insolvency case, told Business Standard, “According to the Insolvency and Bankruptcy Code (IBC), if the lenders want to withdraw a case the minimum requirement is for 90 per cent of the Committee of Creditors (CoC) to vote in favour of the OTS offer. I don't think the offer will be accepted because many claims are yet to be admitted.”

In both the offers, the company says it will pay 10 per cent within 30 days of the acceptance of the OTS offer and the remainder will be paid before the end of March 2019. 

Both these offers only cover nationalised banks and loans given by the Life Insurance Corporation. Both companies also owe money to foreign financial creditors and NBFCs, including Nigerian banks and Glencore Energy UK. 

Emails sent to BakerTilly International in Dubai and its CEO Mago JB Singh, the settlement advisor and representative of the Sandesara Group, went unanswered. 

Sterling Biotech has 3 facilities in Gujarat and one in Tamil Nadu. A plant in the former had to be shut down because of the Pollution Control Board’s (PCB) effluent discharge standards that need constant upgrades. The plant in Tamil Nadu was also shut down by the state PCB and the company is contesting the order. 

Global Oil Resources has a commercial contract to explore 212 million barrels of oil reserves in Nigeria, which requires additional capital financing, but the High Court of Abuja in Nigeria issued an injunction against the use of the resource. 

The company says it is a permanent injunction. 

Last week, the legal representative of its CoC told NCLT that the company has deposited Rs 30 billion in an escrow account to settle its dues.

The legal source cited above, who didn't want to be named, verified the letters and remarked it will be interesting to see how the Resolution Professional will respond, given that most CoC members have yet to approve of the offer.  

As per the OTS offers, the haircut to bankers in the case of Sterling Biotech stands at 43 per cent, while in the case of Sterling Global Oil Resources lenders have to forego 77.6 per cent. 

In its letters, the company said it had tried the Corporate Debt Restructuring route to resolve the debt issue, but that did not materialise because of the time constraint under the CDR guidelines.  

Thereafter, it refinanced the debt as part of its Oil Securitisation facility and Rs 67.7 billion was subsequently repaid to five companies, viz. Sterling Biotech, PMT Machines, Sterling Port, Sterling Oil Resources and Sterling SEZ. 

However, the proposal could not be implemented fully due to a liquidity crunch brought on by crude oil prices sliding to $23 per barrel. 

In October 2017, the Enforcement Directorate (ED) began probing into alleged money laundering activities by the company and its promoters, Nitin and Chetan Sandesara and the CBI filed a First-Information-Report (FIR) against Nitin Sandesara for a Rs 53.8 billion bank loan fraud.

The agency also booked Sterling Biotech, its directors Chetan Jayantilal Sandesara, Dipti Chetan Sandesara, Rajbhushan Omprakash Dixit, Nitin Jayantilal Sandesara and Vilas Joshi, chartered accountant Hemant Hathi, former director of Andhra Bank Anup Garg and other unidentified people. 

Investigating agencies have asked the Interpol wing in Nigeria to verify if Sandesara is in the country, according to reports. 

On June 1, the ED attached assets worth around Rs 47 billion. The assets include immovable properties of 4,000 acres, plant machinery, bank accounts of various companies belonging to the promoters, shares worth Rs 66.7 million, as well as high-end luxury cars.  

The company in a letter said this will make it difficult to identify suitable buyers. They are exploring options to raise funds for the OTS offers from some private financial and strategic investors.