A large number of stressed companies are set to be referred to the National Company Law Tribunal (NCLT) with the Reserve Bank of India (RBI) making it mandatory to have 100 per cent voting for any debt restructuring proposal.
“It's not only the power companies which are facing the brunt of RBI move, but many other companies from telecom and allied industries are also facing the bankruptcy action. In many cases, a bank with less than one per cent vote at the committee meetings had stopped the debt resolution plans and the rest of the banks have no other option but to follow suit and refer the company to the NCLT,” said a lender.
The Supreme Court will hear a case filed by the power producers' association against the RBI's February 12 circular from next Tuesday. Any order will impact these stressed companies from other sectors also as the Supreme Court has bunched all petitions which are filed against the RBI circular.
Lenders and CEOs said in many cases Life Insurance Corporation (LIC), Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) and public sector banks are not giving consent to any debt restructuring proposals. This will lead to at least 80 to 100 more companies being referred to the NCLT, said a lender. In turn, it would impact jobs and supply chains of large and small companies.
A CEO of a mid-sized company said that they had to move the Supreme Court after only one bank decided to vote against its debt sale plan which was cleared by rest of the lenders. "This bank, with less than five per cent vote, has made sure that we are referred to the NCLT which would impact returns for all banks,” he said, asking not to be quoted as the matter is sub-judice.
In September this year, the Supreme Court granted stay on all NCLT cases faced by the power companies and decided to hear all petitions challenging the February 12 circular of the RBI from November 13th. The Supreme Court order came after 34 power producers moved the court requesting it to cancel the RBI's dictate which has put a question mark over the future of these companies.
Interestingly, the Supreme Court has recently cleared a plan by three Gujarat based power producers -- Adani Power, Tata Power and Essar Power to re-negotiate their power purchase agreements (PPAs) after lenders including the State Bank of India submitted that these projects have become unviable due to a change in the Indonesian coal export regulations. During the hearing, the Indian lenders, who have filed debt recovery suits under the Insolvency and Bankruptcy Code (IBC) against 977 companies in the past two years, have said the three Gujarat-based loss-making power projects -- Coastal Gujarat Power in Mundra, Adani Power Mundra and Essar Power -- should be revived with some efforts by all stakeholders and not be allowed to become insolvent.
Indian lenders' track record with NCLT companies has not been good so far. As per the initial data, Indian lenders will take a 56 per cent haircut on loans worth Rs 2.65 trillion to the 12 companies identified for resolution under the IBC, 2016, by the RBI in June 2017. Considering the offers received till now, lenders would be able to recover only Rs 1.15 trillion from bidders.