Skip to main content

Lenders prefer sectoral guidelines for choosing buyers in insolvency sales

Lenders prefer sectoral guidelines for choosing buyers in insolvency sales 
Banks that are part of the consortium of lenders for companies referred to the National Company Law Tribunal (NCLT) have come toaconsensus that there should be sectoral guidelines for selection of bidders among those who show an interest in acquiring any of the stressed assets put up for sale.
Bankers, who held meetings on this issueafew days ago, looked at three alternative evaluation matrices —whether the evaluation criteria should be different from company to company; whether these should be common across all companies, irrespective of the industry; or the third option of their being pegged to a particular sector.
So, for instance, the criteria for choosing bidders for all steel companies will be the same, but these will differ from the criteria for automobile component companies.
BIDDER SELECTION
Banks evaluating three models for selecting bidders
1.It should vary from company to company
2.There should be one evaluation model for all firms
3. it should be a sector-wise process
Banks in favour of sectoral guidelines and have alredy made a presentation on this to the government
Selection of the winning bid will go through a five-stage process  and will be cleared by the NCLT   
Those involved in the discussions say the guidelines for selection need to be transparent, otherwise anyone who loses out could take legal recourse leading to wastage of time and derailing the whole process.They point out that the draft guidelines for making a non-binding bid for Monnet Ispat, which has a deadline till November 16, have already been circulated for discussions.
Those who have placed expressions of interest will bid based on the criteria set out by this document.Some bankers Business Standard spoke to said they preferred sector specific rules.They also want to set a proper formula to determine the reserve price.
A representation to this effect has been sent to the ministry of corporate affairs.Banks feel that there should be stringent and specific guidelines as it is not just their dues but also the fact they have been asked to maintain high provisioning for these companies.Bankers feel that ifacompany is sold at less than half its valuation it will be unfair for creditors.
Experts say that the final decision on who wins the bid will be based onafivestep process, which involves recommendations from both the merchant banker as well as the insolvency professional.Their recommendations will be discussed byamanagement committee comprising the top five lenders to the company.
The recommendations of this small group will then be put up to the committee of creditors, which is represented by the entire consortium of banks that has provided the company its loan. Here it will be put to vote, based onaproportionate system pegged to the amount of exposure, and must secure 75 per cent of the votes after which it will be referred to the NCLT, which will take the final decision.
The insolvency and bankruptcy code allows the resolution professional to open the bidding foracompany in an attempt to restructure it. If there is no buyer for the company, thenaresolution plan is prepared by the resolution professional which is then placed before the committee of creditors for approval.
After this, the NCLT looks at the plan. The NCLT has taken up 12 bigticket cases referred by the Reserve Bank of India that constitute about 25 per cent of the total bank nonperforming assets.These include large steel companies like Essar Steel, Bhushan Steel, Bhushan Steel and Power, Electrosteel and Monnet Ispat; automobile components company Amtek Auto; and real estate and construction giant Jaypee Infratech.
Under the rules, banks must undertake 50 per cent provisioning of their debt.Various companies which include leading PE funds like TPG, Blackstone, SSG and AION apart from Tata Steel, JSW and Arcelormittal have expressed interest in acquiring these companies.
Also PE funds have tied up with corporates to bid together, like AION and JSW for Monnet Ispat.Those bidding say that the enterprise value of companies like Essar Steel and Bhushan Steel should not be more than Rs 5 billion. They argue that with debts of Rs 7-8 billion on their books andaprovisioning of 50 per cent they will be willing to take over the smaller debt (Rs 4 billion) of the company and pay RS 1 billion as cash upfront for the sale.
With a partner, this means PE funds will have to writeacheque of Rs 300-500 million as they will also receive mezzanine credit for financing the payment.Banks, of course, have the option to convert part of the debt into equity
The Business Standard, New Delhi, 28 th October 2017 

Comments

Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Firms with sales below Rs.50 crore out of ambit

The tax department has reiterated that the PoEM rules, which require foreign firms to pay taxes in India if the effective control is here, will not apply to companies withaturnover of Rs.50 crore or less inafinancial year. Last month, the tax department had come out with the longawaited Place of Effective Management (PoEM) rules, which require foreign companies in India and Indian firms with overseas subsidiaries to pay local taxes if their businesses are effectively controlled by Indians. Then the rules did not setathreshold above which they were to apply. However, the accompanying press release states that the rules will not apply to companies withaturnover of up to Rs.50 crore inayear. That created confusion whether the threshold will be adhered to. Inacircular to clarify things, the Central Board of Direct Taxes (CBDT) said the provision "shall not apply toacompany havingaturnover or gross receipts of ~50 crore or less inafinancial year".

PoEM rules essentially target shell …