NEWS ON BAD AND DISTRESSED LOANS. Gujarat High Court to continue hearing Essar Steel insolvency case tomorrow

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1 SOURCE: MONEYCONTROL DATE: NEWS ON BAD AND DISTRESSED LOANS Gujarat High Court to continue hearing Essar Steel insolvency case tomorrow The Gujarat High Court on Wednesday heard the Reserve Bank of India (RBI) against the plea by Essar Steel challenging the banking regulator's directive to lenders to refer the debt-laden company to National Company Law Tribunal. It will continue hearing the cast tomorrow when it is expected to deliver its verdict. CNBC-TV18 reports suggest that the central bank presented its case today said saying it is not treating Essar Steel differently but following a statutory process to resolve the NPA (non-performing asset) mess and the company was far from reaching its restructuring stage. If Essar claims it has a resolution plan already, the turnaround story will be considered in the insolvency proceedings at the the National Company Law Tribunal (NCLT). In many ways, the verdict will have a bearing on the future course of resolution proceedings under the IBC. The central bank said that the previous insolvency process delayed the resolution while the new IBC aims at quick resolution and recovery of NPAs On Friday last week, the High Court had adjourned the case to July 12 after hearing out the lawyers of Essar Steel. Experts believe that the verdict could favour the regulator as the company is focussing on technical gaps to delay the legal action against them. Lawyers also believe that RBI could come out winning in this case as the bankruptcy code makes it clear that no civil court could get to weigh in on the matter. As per the ordinance, if NCLT (National Company Law Tribunal) admits it, it can only further be contested with the National Company Law Appellate Tribunal (NCLAT) and further be moved to the Supreme Court. Last month, the RBI had directed Essar Steel lenders to refer the debt-laden steel company to the NCLT for insolvency proceedings. Essar had moved the court against proceedings and a special bench on July 4 had posted the case for hearing on July 7. The RBI was also ordered to file its reply by then. Essar Steel is among the 12 stressed companies that the RBI has identified to be taken to the insolvency courts on priority basis. Page 1 of 11

2 On June 13, the RBI s internal advisory committee (IAC) recommended for IBC reference all accounts with fund and non-fund based outstanding amount greater than Rs 5,000 crore, with 60 percent or more classified as non-performing by banks as of March 31, The debt-ridden steel producer had questioned the cut-off date of March 31, 2016 fixed by the RBI for selecting those 12 accounts. Meanwhile, foreign lender Standard Chartered Bank had also demanded that the Essar's request to stay the proceedings be quashed. However, the high court's single-judge bench had asked the RBI to submit its reply on the matter and ordered the NCLT to hold back insolvency proceedings until the next hearing. Essar Steel, with a debt of about Rs 42,000 crore, had contended before the court that after months of negotiations with its lenders, the company had reached a settlement with the creditors. The company was trying to restructure the package approved by its board of directors but before any concrete decision was arrived at with the creditors, RBI released the circular on June 13 to take it to the insolvency proceedings. Essar Steel has demanded that the overseeing committee (independent 5-member panel set up by RBI) take into account its interest payments of Rs 3,500 crore to the lenders, higher capacity utilisation at 80 percent in its steel plant and a resultant 42 percent rise in its earnings before interest, tax, depreciation and amortisation (Ebitda) in FY17. The steel producer has also stated before the court that RBI has given six months time to many other large defaulters to come clean and that they should also be given the same opportunity. Page 2 of 11

3 SOURCE: ECONOMIC TIMES DATE: Tata Steel sells UK pipe mills to Liberty House Tata Steel said on Tuesday it had agreed to sell its pipe mills in the north of England to UK-based metals and industrial group Liberty House for an undisclosed sum. The mills in Hartlepool employ 140 people and have a production capacity of over 250,000 tonnes a year. Tata Steel, Britain's largest steelmaker, has been selling off parts of its UK business since last year, when it announced talks to merge its British and European steel assets with those of Germany's Thyssenkrupp. "With this sale, Tata Steel UK will complete its portfolio restructuring to focus on the strip products supply chain linked to Port Talbot," said Bimlendra Jha, CEO of Tata Steel UK. "The sale is also an important step towards developing a more sustainable future for the rest of our UK business." In February, Tata signed a 100 million pound deal to sell its speciality steel business to Liberty House, saving 1,700 jobs, mostly in South Yorkshire, northern England. Under Tuesday's deal, Tata retained ownership of a tube mill in Hartlepool that is supplied with steel coils from the European steel assets that it wants to retain and merge with Thyssenkrupp. Tata, whose UK business is centred on the steelworks in Port Talbot, Wales, said it will invest 1 million pounds ($1.29 million) in the Hartlepool tube mill, which employs 270 people. Privately-owned Liberty, which plans to list some of its businesses in 2018, has been snapping up distressed steel assets in Britain and around the world, including in the United States and Australia. "This step will inspire investments not only in Hartlepool but also in our upstream plate mill at Dalzell (Scotland), and potentially... at Whyalla in Australia in due course, to give us a fully-integrated world class capability to supply pipeline projects," Liberty's Executive Chairman Sanjeev Gupta. The Hartlepool pipe mills make heavy-duty steel pipe for the oil and gas sector. Liberty, which operates together with energy and commodities business SIMEC under the $9.4 billion Gupta Family Group (GFG) Alliance, said it is in talks to secure a support package to recruit more staff for the pipe mills business. Gupta's Liberty House is one of the largest industrial employers in the UK with a workforce of nearly 5,000 people. Following Tuesday's deal, Tata remains the largest UK steelmaker with a workforce of 8,500 people. The UK steel sector is emerging from a crisis that saw some 5,000 jobs, a fifth of the workforce, axed in 2015/16. It is estimated that for every steel job saved, four jobs are retained in related industries. Gupta first hit the headlines last year when he offered to rescue all the distressed UK steel plants owned by Tata, but the Indian group eventually decided against selling its entire UK business in favour of a tie-up with Thyssenkrupp. Page 3 of 11

4 SOURCE: BUSINESS NEWS DATE: To step up mining exploration, PPP models need to be explored: Piyush Goyal Piyush Goyal, Minister of State (Independent Charge) of Power, Coal, New & Renewable Energy and Mines, today underlined the need to step up mineral exploration in the country that is currently constrained due to lack of private sector participation in the activity. He said this while inaugurating a conference on Indian Mining Industry 2030 Way Forward, organized by FICCI jointly with the Ministry of Mines, Government of India. Shri Goyal said that the time was ripe to reflect on where we had gone wrong and suggested a PPP model could be tried out for giving a fillip to mineral exploration. He urged FICCI to set up a committee comprising young mining aspirants to develop a position paper to speed up exploration activities. This committee should look at innovative ways to bring down the time of actual operation of mine after it is put up for auction, thus enabling the sector to make a quantum jump. Addressing the industry s concerns, the Minister said that high value, strategic and import substitution minerals were the priority minerals for exploration for making India self-sufficient in minerals. Shri. Goyal said that Young person s specializing in mining could be invited to India and a system could be worked out to benefit all the stakeholders. He assured the industry that the issue of wide differences in stamp duty in various states would be addressed by the Government in consultation with the State Governments. Also, mapping would be undertaken and data on minerals would be updated for making an accurate assessment of mineral reserves in the country. On the occasion, a FICCI-KPMG report titled Mines & Minerals Development: Way Forward was unveiled by the Minister and other dignitaries. The report suggests an action plan for achieving mineral security in the country by 2030; enhancing exploration activity; bridging skill gap in the sector; strengthening mining in states; and making the sector backbone of Make in India through Mine in India. The Guest of Honour, Shri Arun Kumar, Secretary, Ministry of Mines, while addressing the issue of Part B un-notified minerals in the new Act said that a meeting was being held to look into the issue and clarified that the government will not support G2 exploration for them. He added that the industry, government and public were the three stakeholders in the project for taking the sector and country forward. In his Keynote Address, Shri Syedain Abbasi, Joint Secretary, Ministry of Steel, said that for the steel industry to maintain its competitiveness it was necessary that the prices of raw materials remained competitive. Though iron ore was cheap and India had a large market but the high capital and logistics cost was affecting the sector s efficiency. He added that steel industry was in crisis some years back but Page 4 of 11

5 in the last three years, the industry has experienced a positive trend with an increase in export and decrease in imports. In his concluding remarks, Shri Tuhin Mukherjee, Managing Director, Essel Mining & Industries Ltd and Chair, FICCI Mining Committee, said that there was a need to relook at the present processes and work out an innovative business model while focusing on asset management. Also, governance and workforce collaboration was needed in the sector and energy and environment issues needed to be addressed with the help of technology. Dr. A Didar Singh, Secretary General, FICCI, said that mineral security was as essential as energy and food security for the economic growth of the country and the private sector has a critical role to accelerate the pace of growth of mining sector. Page 5 of 11

6 SOURCE: TIMES OF INDIA DATE: Essar misled court, made false statements: RBI to High court The Reserve Bank of India (RBI) on Wednesday submitted before the Gujarat high court that Essar Steel Limited, which had moved a petition in the court challenging the insolvency proceedings initiated against it, had misled the court and made false statements in its plea. The submission came in connection with the petition filed by Essar earlier this month against the insolvency proceedings initiated by National Company Law Tribunal (NCLT). Arguing before HC judge S G Shah, senior counsel for RBI, D J Khambata, submitted that the minutes of the meeting between Essar Steel and its lenders revealed that the company was "far from reaching any restructuring settlement" and Essar Steel was also aware of insolvency proceedings initiated against it at the National Company Law Tribunal (NCLT). Khambata further argued that Essar Steel misled the court and suppressed facts to get interim relief in the case. "The company claimed that it was kept in the dark about insolvency proceedings, but on June 22 the SBI had called LJF (Lenders' Joint Forum) meeting and in that, resolution professionals (liquidators) were present and had made their presentation. Essar officials were also present in the meeting and they had even made their presentation on restructuring. So, it is incorrect to say that they were unaware of the insolvency proceedings," argued Khambata. Essar Steel had a debt of Rs 45,655 crore, of which Rs 31,671 crore had turned NPAs for banks by March 31, This had increased to Rs 32,864 crore by March 31 this year. Khambata said the motive of the proceedings at the NCLT was to recover "the maximum value in a minimum time-bound manner". "The IBC (Insolvency and Bankruptcy Code) is not for winding up a company but to resolve and restructure to avoid winding up," Khambata said. Arguing on behalf of Essar, advocate Mihir Thakore said that the RBI directives came at a time when the company was almost close to reaching a settlement with the RBI about the default amount. "There was no need for the RBI to give directions to SBI to initiate insolvency proceedings against us. The RBI has not clarified how classification of accounts was done. How can you put an insolvent company in the same bracket with a company running operations," argued Thakore. "The company's operational performance improved significantly during FY Since the RBI gave directions to consider NPAs as on March 31, 2016, improvement in performance is not considered, which is wrong," Essar's lawyer submitted before the court. The hearing will continue on Thursday. Page 6 of 11

7 SOURCE: FINANCIAL EXPRESS DATE: NCLT defers till July 18 hearing on SBI petition against Alok Industries The Ahmedabad bench of the National Company Law Tribunal (NCLT) on Wednesday deferred till July 18 the hearing for admission of insolvency proceedings against Alok Industries filed by State Bank of India. Alok Industries, according to sources, admitted its default to SBI to the tune of Rs 3,700 crore before the NCLT, which may hence lead to eventual admission by the court. Lenders to Alok Industries had begun insolvency proceedings against the textile firm in June by moving an application before the NCLT. The joint lenders forum (JLF) approved a move by SBI to file the application under the Insolvency and Bankruptcy Code (IBC). This followed the Reserve Bank of India s directive to lenders to initiate the corporate insolvency resolution against 12 such non-performing accounts. Besides Alok Industries, the accounts identified by the RBI include Amtek Auto, Bhushan Steel, Essar Steel and Bhushan Power and Steel. The list also includes Monnet Ispat, Electrosteel Steels, Era Infra, Jaypee Infratech, Lanco Infratech, ABG Shipyard and Jyoti Structures as defaulting borrowers. Alok Industries reported a consolidated loss of Rs 3,071 crore on an income of Rs 8,919 crore in FY17. The company had posted a loss of Rs 4,367 crore on revenues of Rs 12,929 crore in FY16. Page 7 of 11

8 SOURCE: INDIAN EXPRESS DATE: Recovery of dues under new law: Two major defaulters fight it out in court It s not just banks which are using the Insolvency and Bankruptcy Code, 2016 (IBC) against loan defaulters to recover bad loans. Bhushan Power & Steel Ltd has dragged Amtek Auto Ltd both of which figure in the list of 12 large defaulters identified by the RBI for early bankruptcy proceedings to court under the new law to recover dues. According to the filings before the Chandigarh bench of National Company Law Tribunal (NCLT) Bhushan Power & Steel, an operational creditor of Amtek Auto filed a petition under IBC in early May, seeking to recover over Rs 60 lakh from the Delhi-based auto ancillary firm. The case was admitted by the NCLT and an interim resolution professional was appointed. On May 18, Justice RP Nagrath of the Chandigarh NCLT, dismissed the petition after Amtek Auto deposited a cheque of over Rs 60 lakh with Bhushan Power. The court also granted Bhushan Power the liberty to seek appropriate remedy, if need be, including filing of fresh petition under Insolvency and Bankruptcy Code in the case. s and phone calls to Bhushan Power and Amtek Auto did not elicit any response. Bhushan Power & Steel and Amtek Auto owe lenders Rs 37,248 crore and Rs 14,074 crore, respectively. Banks led by Punjab National Bank have initiated proceedings against Bhushan Power & Steel under the IBC. The firm is privately held with promoters owning 94.4 per cent shares and rest owned by foreign institutional investors. The company has plants located in five locations in northern and eastern India. Bhushan Power reported a net loss of Rs 2,433 crore in FY16 on revenues of Rs 8,491 crore. Its gross debt stood at Rs 37,248 crore in FY 16, up from Rs 33,785 crore in the previous fiscal. The lenders of Amtek Auto include Dena Bank, Corporation Bank, Bank of Maharashtra, among others. According to sources, the firm owes over Rs 800 crore to Corporation Bank the lead bank of the consortium of lenders that has petitioned for insolvency against the firm at the NCLT. For the year ended March 31, 2017, Amtek Auto had reported a net loss of Rs 2, crore. The proceedings against Bhushan Power and Amtek Auto follows a directive by the RBI on June 13 to banks asking them to refer 12 troubled firms with a combined debt of close to Rs 2.5 lakh crore to the NCLT. The 12 accounts identified by the RBI are those in which banks have an exposure of more than Rs 5,000 crore, more than 60 per cent of which has been recognised as NPAs. Page 8 of 11

9 SOURCE: LIVEMINT DATE: Bank of Baroda moves NCLT to recover Rs97 crore from Binani Cement Bank of Baroda has filed a petition against Binani Cement Ltd with the National Company Law Tribunal s (NCLT) Kolkata bench, seeking to recover Rs97 crore in an outstanding loan under the new Insolvency and Bankruptcy Code after the firm failed to come up with a restructuring plan to clear its dues. Lawyers for Binani Cement, a privately held firm of the Braj Binani Group, claimed Bank of Baroda s application had several technical flaws, and that its claim was minuscule compared with the total value of the group s assets, which, according to its lawyers, is Rs14,000 crore. Binani Cement, which is a unit of Binani Industries Ltd, had assets worth Rs5, crore at the end of March, according to the holding firm s auditor, MZSK & Associates. NCLT s Kolkata bench on Wednesday reserved its order on whether or not it would admit the lender s application under the new insolvency code. If the application is admitted, the company s board will be superseded and an interim resolution professional appointed to take control of its assets and operations. Bank of Baroda wants management consulting firm Deloitte to be appointed as interim resolution professional. Pratap Chatterjee, counsel for Binani Cement, said Bank of Baroda was not the lead lender to the cement maker and that it had not taken the approval of the joint forum of lenders before moving NCLT. Citing Reserve Bank of India rules, Chatterjee said Bank of Baroda was required to write to the joint forum and wait for at least 30 days before unilaterally moving NCLT. Chatterjee asked why Bank of Baroda was seeking the appointment of an administrator to recover a small loan of Rs97 crore when the lead banker, Central Bank of India, was not seeking dispute resolution in this manner. However, senior advocate Ratnanko Banerjee told the bench that Bank of Baroda s move had the backing of the joint forum of lenders led by the Edelweiss Group, and that Binani Cement was in distress because the management had failed to come up with a restructuring plan. Bank of Baroda has in its application said the firm had in a meeting with the joint forum of lenders in January committed to preparing a restructuring plan, according to the bank s counsel, Rishav Banerjee. Lenders met the management again in April, but no concrete plan for revival has yet been given, Banerjee said in his submission to the bench. In fiscal year , Binani Cement registered a net loss of Rs crore on revenue of Rs1, crore, according to the auditor of its holding company. Binani Industries net consolidated loss was Rs crore, and its consolidated liabilities exceeded its assets by Rs1, crore. Page 9 of 11

10 The management has represented to us that it is hopeful of revival of businesses in the subsidiaries in the near future, auditor MZSK & Associates wrote in its report. Lenders, however, appear to have lost confidence in the management. Banerjee said Bank of Baroda had lent Rs386 crore in all, and that Rs97 crore is currently outstanding. The company started to default on its repayment obligations in 2015, he added. Page 10 of 11

11 SOURCE: BUSINESS STANDARD DATE: Q1 FY18 results: What to expect from the banking sector In Q1 FY18, a major event was the government passing an ordinance for stressed asset resolution and accordingly the Reserve Bank of India (RBI) has asked banks to refer 12 large accounts comprising 25% of GNPAs (mainly in steel/metal and infrastructure sector) to NCLT (National Company Law Tribunal) for initiating insolvency proceedings. While this is positive in the long run, it would entail heavy provisioning burden on banks as RBI has asked for 50% provision on secured and 100% provision on exposures referred to NCLT. The impact of NCLT provisions may be seen marginally in Q1 and may largely flow to next few quarters. We expect NPA accretion to moderate in Q1 FY18E compared to the previous quarter. Slippages from the watchlist provided by banks would remain key monitorable. For our coverage universe, we expect net addition in GNPA at Rs 6,430 crore. Despite moderation in slippages, GNPA ratio is expected to inch up owing to muted growth in advances. The banking system s credit growth was muted at around 6% y-o-y as on June 09, 2017, while deposit increased 11% y-o-y. Retail focused private banks are expected to maintain their strong growth trajectory of over 20% y-o-y. SBI is expected to grow in-line with industry at around 6% y-o-y, mainly led by a strong trajectory in its retail portfolio. PSU banks would continue to see single-digit growth of around 5%, while private banks would grow credit at 17.3% y-o-y. In our coverage, mid-size private banks like Federal Bank, DCB Bank and City Union Bank seem to be not much impacted by accounts referred to NCLT and are thus expected to deliver healthy set of numbers. Earning of retail-centric large private banks is expected to continue to remain strong. This would be first quarter when SBI would report results as a merged entity and hence numbers may not be fully comparable. We expect SBI to report a loss on a consolidated basis. Overall, we expect our banking coverage universe NII to grow 14.1% year-on-year, while profit after tax (PAT) is expected to de-grow by around 13.7% y-o-y and grow by 47% on a q-o-q basis. THANK YOU! Page 11 of 11