Videocon Industries: Between a long-drawn IBC process and a hard place

The former giant of the Indian corporate world is caught on the shoals of a long-drawn insolvency process even as lenders face the prospect of losing most of their money

For close to three decades, Videocon Industries, a company set up by an ambitious businessman from interior Maharashtra, Venugopal Dhoot, was the market leader in the consumer durables industry. The success was so fast that it ended the dream run of then rivals such as Onida and BPL.

With several successful launches in consumer goods, the company decided to enter new sectors such as oil and gas and later wireless telephony services by 2008. It was the latter that finally led the entire group to the bankruptcy court.

In 2012, the Supreme Court decided to cancel all wireless telephony licences awarded by the United Progressive Alliance, ending Videocon’s telecom dream, which cost it close to Rs 20,000 crore. As losses over its wireless telephony shot up, it fell behind repaying bank loans. In 2017, the Reserve Bank of India ordered banks to send the company to the bankruptcy courts.

Interestingly, when the RBI order came, the company had almost finalised a debt resolution proposal drawn up by SBI Caps, a subsidiary of the company’s lead bank, State Bank of India. This proposal would have enabled the banks to recover dues of up to Rs 27,500 crore, which the Joint Lenders Forum (JLF) okayed in November 2017 after the forensic auditors gave the company a clean chit certifying that there was no fund diversion by the group.

Under this proposal, the company's debt was to be split into two parts: Interest-bearing debt for Rs 15,000 crore, which was 55 per cent of the principal amount, and non-interest bearing debt of Rs 12,257 crore. Besides, Rs 4,032 crore of unpaid interest was also to be serviced as a non-interest bearing instrument.  

Along with the long-term resolution plan, the group also proposed to restructure its business by splitting the company into three verticals: The main consumer electronics (NewCo), the residual business such as oil and gas business and the affordable housing segment. The demerger exercise was to be over by March 2019.

Of the Rs 15,000 crore interest bearing loan, NewCo was to take over Rs 10,000 crore of debt, and another Rs 1,500 crore was to be raised by selling real estate; affordable housing projects were to carry rest of the debt. On the non-interest bearing debt, NewCo was to hold Rs 7,500 crore as preference shares and surpluses from the oil and gas business was to take care of the rest of the debt.

But before the JLF could sign off on the proposal formally in its next meeting in early 2018, the RBI asked SBI to send Videocon to the National Company Law Tribunal (NCLT) under the newly formed Insolvency and Bankruptcy Code, 2016. This was despite the SBI writing to the central bank to say the company’s debt problem would be resolved soon and it should be given time.

The RBI rejected SBI’s stand — leading to the collapse of the company. “The net result is for everyone to see. The company’s 6,000 employees lost their jobs and banks have been waiting since December 2017 to recover their dues. Since 2017-end, the banks have not received a single penny,” says a banker. “The only people who are making money are the resolution professionals and lawyers. The rest are turning out to be big losers,” he adds.

The banker also pointed out that the resolution professional (RP) is being paid Rs 10 crore a year by the company as remuneration and resolution expenses. There is also a question mark over whether the present RP, who was earlier employed with State Bank of India, can take up the assignment as there is a conflict of interest. The matter is currently pending in the Supreme Court after the National Company Law Appellate Tribunal said a former banker cannot act as a neutral umpire who has to look after the interest of all stakeholders.

The Indian banks, which made massive claims worth Rs 59,500 crore against the company, are turning out to be the biggest losers with no solution in sight. Of this, Rs 57,443 crore of claims were admitted as on November 2018. In the lenders’ meeting held on August 14, lenders to Videocon Industries decided to wait for a better bid for the company before taking a final decision on liquidation. They believe the Covid-19 pandemic has resulted in bidders having second thoughts. Haier, Haldiram and Vedanta had shown interest initially. 

If the company does go into liquidation, the lenders will end up taking a huge haircut on their exposure. SBI had notched up the highest exposure in the company with Rs 11,175 crore worth of claims, followed by IDBI Bank with Rs 9,561 crore and Central Bank of India with Rs 5,066 crore.

Just a month ago, the lenders had discussed the option of sending the company to liquidation as bidders were backing out. But there is a thinking among lenders that with economic activity picking up, it may get good offers in the next few weeks. But there is no guarantee of a good offer.

The big question is whether the company will be able to make a comeback or end up in liquidation with banks left to take a huge haircut. Former promoters say the company will be able to take on the LGs and the Samsungs of the world because it enjoys a lot of goodwill in the market. They are planning to make a last-ditch effort to bring the company back from the brink.

Though the main aim of the insolvency law is to maximum returns of all stake holders, the banks have received only half of their dues while other stakeholders lost more. With extensive litigation going on over the interpretation of the insolvency law, it will be interesting to see where this former racehorse of the Indian corporate world finally ends up.