CoC must look at value maximisation in resolution plans: Icra

Amid the protracted battle in the Binani Cement's bankruptcy case, domestic rating agency Icra today said committee of creditors (CoC) should look at value maximisation while selecting resolution plans.

"The IBC (Insolvency and Bankruptcy Code) does not lay any guideline for the CoC to follow while accepting resolution plans and in Icra's view, the CoC can be more ingenious in the manner they select the best resolution plan, whereby the objective of maximising the value of assets is achieved," it said in a note.

In the note, the rating agency acknowledged that the Supreme Court will be deciding on the Binani Cement matter, after the National Company Law Appellate Tribunal allowed for Ultratech's higher bid for the asset.

"The final verdict may decide the approach that would be subsequently followed by the CoC while asking for resolution plans," it said.

It can be noted that Ultratech came back with a bigger offer for Binani Cements, where a bid led by rival Dalmia Cements had bagged the asset. This led to questions over sanctity of the resolution process not being followed.

The note from the rating agency comes days after Insolvency and Bankruptcy Board of India (IBBI) chairman MS Sahoo had appealed to the CoC to keep the collective interest of all stakeholders in mind, rather than of a chosen few who would want value maximisation.

"The objective of a CoC is to generate competitive resolution plans, and then approve that plan which maximises the value for everybody, in contrast to recovery which maximises the value only for one set of people," he had said.

In the note, the agency said there are early signs of change in credit culture due to implementation of IBC, one year since the law was implemented.

Based on the bids for the first list of 12 dud assets mandated to be resolved under the new framework, the agency said it expects recoveries of up to Rs 1 lakh crore, against an outstanding of Rs 3 lakh crore.

There has been a firm conclusion on only one corporate debtor till now (Bhushan Steel), while a couple of cases such as Monnet Ispat and Electrosteel Steels are close to finalisation of resolution plans, it said, conceding that there are legal hurdles.

The agency said the legal cases will help streamline the bad asset resolutions.

"We expect the process to start getting streamlined from next year onwards once the legal complications around the large-size corporate debtors that are currently in the midst of their resolution process get resolved," Icra's co-head for corporate ratings Abhishek Dafria said.

He added the court judgements in Binani Cement and Essar Steel will especially be eagerly awaited as they would bring clarity to the process and set guidelines for future cases.