Losing momentum: Three years on, Amtek Auto still awaits IBC resolution

After an encouraging start, the IBC, launched by the Modi government in 2016, is losing momentum. The first of a 5-part series looks at Amtek Auto's resolution process

Three years ago, Amtek Auto, on the RBI’s first list non-performing assets to be resolved under the Insolvency and Bankruptcy Code (IBC), was admitted to the National Company Law Tribunal. Today, the bid amount has seen a drop, standalone revenues are on the slide and the resolution process is under threat, yet again.
 
Amtek is one of the few IBC cases where the corporate insolvency resolution process (CIRP) was reopened after an order by the Supreme Court. It is the second such instance of the process being restarted, the other being Jaypee Infratech.
 
According to the IBC timeline, the process for Amtek should have been completed by April 2018. However, Liberty House cited misrepresentation and irregularities in the information relating to the corporate debtor and did not implement its Rs 4,025 crore resolution plan; the upfront payment was Rs 3,310 crore.
 
Amtek’s information memorandum had disclosed assets of Rs 15,000 crore, of which fixed assets were Rs 9,700 crore and the liquidation value was Rs 4,100 crore.
 
After approval of Liberty’s resolution plan, Rs 7,000 crore of fixed assets were written off from a date prior to submission of the resolution plan, sources close to Liberty claimed. They also said that the liquidation value was hugely inflated because the price of many new machines was listed as lower than the liquidation value given by the valuers. The information on sales, Ebitda and inter-group connectedness was also misleading.
 
The resolution professional could not be reached for comment.
 
Non-implementation of the Liberty plan prompted the National Company Law Appellate Tribunal (NCLAT) to order liquidation. However, the Supreme Court permitted the Resolution Professional to invite fresh offers after an appeal from the committee of creditors.
 
In January, US-based hedge fund, Deccan Value Investors, submitted a Rs 2,700 crore resolution plan, which included an upfront payment of Rs 500 crore. The balance Rs 2,200 crore would be paid from future cash flows. “The delay in the process has caused a destruction in value. The recovery amount has come down from Rs 4,000 crore to Rs 2,700 crore. Also, problems relating to Covid-19 have exacerbated the issue,” said a lender with exposure in Amtek.
 
Citing the deteriorating performance of the corporate debtor in the wake of the pandemic, Deccan Value Investors —  the successful resolution applicant from the second round of bidding — triggered the force majeure clause. Its assessment for force majeure, however, was based on information provided in June. Since then, no information on performance has been shared by the company, said Deccan Value Investors.
 
Incidentally, Amtek has written to the stock exchanges requesting more time, till October 30, to submit standalone and consolidated financial results, the auditor’s report for the financial year March 31, 2020, and the un-audited financial result for the quarter ended June 30, 2020.
 
The firm has cited Covid-related disruptions for the delay in finalising the results. But the prolonged insolvency process, coupled with the slowdown in the auto sector, appears to have impacted revenues. In FY19, standalone revenues were at Rs 1,135.68 crore compared to Rs 1,459.85 crore in FY18. In FY17, they were Rs 1,966.76 crore.
 
A person familiar with the Amtek matter explained that in some industries such as a continuous process steel plant or a power plant, it may be possible to restart operations and bring production back to optimal levels quickly.

“However, in other industries, such as automotive components, consumer products, services and technology, the value depletion is much faster and the path to recovery becomes more challenging with time. For example, an auto components manufacturer that might command the market in certain segments, starts to lose market share very quickly as the insolvency process lingers on and OEMs go elsewhere,” he said.
 
In bankruptcy, as Vinit Bodas, managing partner, Deccan Value Investors, says, time is the enemy. “It’s not like a going concern where sales are increasing and the value is too. In this case, customers are constantly moving business away because they think the company is in bankruptcy. That’s why bankruptcy is a different animal and any delay results in value destruction,” said Bodas.
 
There are other issues with the Deccan Value Investors’ plan. There were three contingencies to the plan. There was a long stop date, so that if the plan was not approved within a certain period of time, it became void.
 
Then the land lease agreement for the main facility (which has around 45 per cent of production) had to be sorted out as the lease was not valid. Third was the force majeure clause. According to DeccanValue Investors, the condition precedents have not been met.
 
The land lease dispute is in the NCLAT. “If the condition precedents are not met, the bidder may potentially renegotiate terms and put a value which could see a further erosion in the bid amount,” said Kumar Saurabh Singh, partner, Khaitan& Co.
 
Deccan Value Investors said it is willing to come to the table for discussions to hammer out a “win-win” solution for Amtek, but it wants to be treated fairly by the lenders, especially since the contract is void. The committee of creditors has already filed applications in the Supreme Court against Deccan Value Investors. With a legal case looming, the resolution of Amtek may have to wait longer.