Lenders request RBI approval to sell Jaiprakash Associates loan to NARCL

SBI-led lenders are pursuing RBI clearance to shift real estate firm's Rs 18,000 crore debt to NARCL in a Rs 10,000 crore deal

State Bank of India (SBI) and other lenders have requested approval from the Reserve Bank of India (RBI) to transfer the Rs 18,000 crore debt of real estate firm Jaiprakash Associates (JAL) to the National Asset Reconstruction Company of India (NARCL), the Economic Times reported citing sources.

RBI’s approval would mark NARCL's largest acquisition of debt from a single company, with a proposed offer of Rs 10,000 crore to the lenders. NARCL has made RBI's approval a condition for acquiring JAL's loans, said the report.

JAL is the flagship firm of the Jaypee Group, which is led by Manoj Gaur and operates in cement, hospitality, real estate, fertilisers and construction. In Financial Year 2022-23, NARCL acquired 62 per cent of Jaypee Infratech's debt, amounting to Rs 9,234 crore, resulting in a 39 per cent recovery for lenders through an uncontested Swiss challenge auction.

Lenders are pursuing approval because in 2017, shortly after the enactment of the Insolvency and Bankruptcy Code (IBC), the RBI instructed banks to refer 28 companies, including JAL, for debt resolution under IBC. JAL was part of the second batch of 28 accounts referred by the RBI for resolution under the IBC.

Although banks initiated the debt resolution process for JAL by filing an application with the National Company Law Tribunal (NCLT) around the same time, the company has not yet been admitted due to ongoing litigation.

For some of the 28 companies referred by the RBI, lenders sold debt to private asset reconstruction companies without RBI approval. For JAL's debt resolution, they are seeking proper channels.

In November last year, Jaiprakash Associates entered into an agreement with ICICI Bank to transfer 18.9 crore shares to the bank, which were pledged as collateral. It was anticipated to result in a recovery of approximately Rs 366 crore for the bank, based on the last closing price of the shares.

However, lenders assert that JAL's complex structure, comprising multiple large businesses under one entity, necessitates RBI clearance for NARCL's acquisition to avoid potential regulatory issues.

If lenders proceed with the debt transfer to NARCL, the asset reconstruction company will gain control over JAL's cement division, prime land housing the Buddh International Race Circuit, several luxury hotel properties, and a construction business.

Separately, SBI and ICICI Bank have filed petitions with the Allahabad NCLT to admit JAL for debt resolution. Meanwhile, Dalmia Cement (Bharat) has made a binding offer to acquire JAL's clinker, cement, and power units at an enterprise value of Rs 5,666 crore. The funds from this offer are intended to partially settle the lenders' debt.

Although the cement unit has a capacity of 9.4 million tonnes, the clinker plant boasts 6.7 million tonnes, and the power plant generates 280 MW, the deal remains pending as lenders have not issued a no-objection certificate.

NARCL's proposed offer includes a 15 per cent cash component and the remainder in securities receipts. This entails a cash portion of Rs 1,500 crore, with the remaining Rs 8,500 crore as securities receipts, redeemable upon NARCL's recovery of the dues.