Lenders waiting for Godot in Videocon insolvency as IBC wheels turn slow

Banks have been waiting for their dues since 2017 as the issue over naming of resolution professional and consolidation of all group firms into one resolution plan delayed the whole process

In November 2017, Indian lenders were almost close to clearing a debt restructuring package for Videocon Industries after the forensic auditors gave a clean chit to the company. But within a month, the Reserve Bank of India asked banks to send the company to the National Company Law Tribunal (NCLT) for debt resolution under IBC 2016.

Since then, the banks have been waiting for their dues as the litigation over appointment of the resolution professional and consolidation of all group companies into one resolution plan delayed the entire process. By the time bids were called in this year, three years were lost with banks not receiving a single penny on their dues.

The promoters, meanwhile, revived their 2017 debt restructuring plan and asked the banks to consider its application under Section 12A of the IBC which gives the promoters an opportunity to take control back of their companies.  The company has also attracted the attention of other suitors like Vedanta and former Bharti Airtel director Akhil Gupta who has also bid for the company via his personal entities.

Videocon lenders will be voting on the bidder’s proposals this week.

What went wrong?

The former promoters of Videocon said the cancellation of second generation based licenses of their telecom subsidiary by the Supreme Court of India resulted in a huge loss to the company. The company had invested Rs 10,000 crore in its telecom subsidiary and after it was shut down, it not only lost the equity but was also made liable for the debt taken by it. “The abrupt cancellation of the licenses was a death blow to the company and it was never able to recover from the loss,” said a former company official. By the time, the company was sent for debt resolution, it owed close to Rs 40,000 crore to the lenders.

In its debt restructuring proposal, Videocon promoters have said since the group started its business in 1984 till December, 2016, it had never defaulted on its loans and managed to take on competition from cheap products which were Made in China and dumped into Indian markets.

Asking for a debt recast, company’s founder V N Dhoot says the bank will not have to take any haircut on their loans and it will pay its dues by selling real estate assets of the company. ‘’Videocon fell into a loss due to external and unforeseen factors such as 2G judgement and crash in the real estate market. We have all the expertise to re-build the business,” said VIL Chairman, VN Dhoot. Videocon can revive and take on the competition from China under the Make-in-India initiative and the recent ban on Chinese electronics products.

What next?

One of the biggest losers of VIL’s bankruptcy proceedings are its former employees. As they were not paid for months, several employees stopped coming to work and are waiting for opportunities for over two years. The ongoing Corona pandemic has just made things worse. “The pandemic has bought more people in the market with similar skill sets. As most of the companies are not investing, there are no new job creation,” said a former VIL official in his early 50s. “No one is looking at the human cost of sending the companies to the NCLT without a viable backup plan for the employees,” said he asking not to be quoted.  

“Some of us have opened sandwich stalls and ice cream parlours – just to survive. But Corona has shut that also down,” the official, who was earlier a white collar worker, said.