Business Today

Zeroing in on the dozen

A closer look at what's in store for the 12 largest corporate defaulters.
By Anand Adhikari and twitter-logoNevin John    Delhi     Print Edition: August 13, 2017
Zeroing in on the dozen

Lanco Infratech

Hyderabad-based Lanco Infratech (LIL) seems to have bitten off more than it could chew. Run by L. Madhusudhan Rao whose elder brother Lagadapati Rajagopal was once a Congress Lok Sabha MP, LIL is the holding company of the power and infrastructure businesses of the group. It grew tremendously in the early 1990s driven by large construction contracts. It aggressively diversified into power, infrastructure and property development. By 2013, Lanco was among the largest private power producers with an installed capacity of over 4,500 MW.


Post-2011, macroeconomic sectoral issues which led to lower than expected cash generation in operating projects had a detrimental effect on the group's performance. Currently, bankers say the power assets are not generating enough revenues because power purchase agreements (PPAs) are not in place. State Electricity Boards (SEBs) too are not signing PPAs due to availability of cheap power at the exchanges. "The poor financial health of discoms leading to delayed payments against power supplied put substantial pressure on cash flows and working capital requirements of the projects," says Rao.

Lanco is now facing bankruptcy proceedings at the NCLT's Hyderabad bench. Chairman Madhusudhan Rao says Lanco is supporting the bankruptcy initiative of lenders in the hope that they will be able to approve a resolution plan. "Lanco is looking for some last mile funding. That should come," says a banker. The company requires funds for completing the second phase (2X 660MW) in Chhattisgarh.

Bankers are also exploring the possibility of selling some assets but the RBI directed bankruptcy is only for the holding company, which has shares in operating companies - power (thermal and hydro), infrastructure (roads), natural resources (coal), solar (EPC and generation) and property development. "Ideally, the bankruptcy proceedings should start from operating companies and end with holding companies," says a banker. "There are plans to bring in a strategic investor in the company's power subsidiary and JSW and Tata Power have shown interests," says another banker.

Lenders led by IDBI Bank can invoke bankruptcy proceedings in the operating companies where there is proof of default. This is something bankers are expected to explore as the proceedings for Lanco Infratech starts. "This (invoking bankruptcy) is something even operational creditors can do," says a lawyer. IDFC holds 17.04 per cent in the holding company and ICICI Bank 1.58 per cent. The promoters' stake has come down from 70 per cent to 58 per cent.

Bhushan Steel

In May this year, Delhi based Bhushan Steel, which has plants in Maharashtra, Odisha and Uttar Pradesh, had bagged an iron-ore mine in Odisha in an aggressive auction. It beat sectoral giants Tata Steel and JSW. The bullish posturing revived hopes of investors but was not enough to win bankers, who dragged them to the Delhi bench of NCLT this month.


The Bhushan group founded by first generation entrepreneur Brij Bhushan Singal started as a manufacturer of door hinges in the 1970s. Over four decades under Singal, who is now non-executive chairman, Bhushan Steel created a steel capacity of 5.6 million tonnes per annum. Younger son Neeraj manages the company as its vice-chairman and managing director. Bhushan Steel's bad times started in 2012 when coal mines were cancelled by the Supreme Court. Slump in steel prices followed. "Dumping of steel from China and cancellation of mines were other reasons," says Nitin Johari, Director (Finance) at Bhushan Steel. Over the years, debt rose steadily to Rs 40,000 crore while it added capacity. The company struggled to repay loans. The bribery allegation against the promoters came up in August 2014 and the Central Bureau of Investigation arrested vice-chairman Neeraj Singhal for allegedly bribing Syndicate Bank chairman S K Jain, among others.

Neeraj Singal, Vice Chairman and MD

Over the last two years bankers and the company studied various restructuring proposals from the 5/25 Scheme for refinancing the loan to the Scheme of Sustainabale Structuring of Stressed Assets (S4A). The S4A scheme allows converting unsustainable debt into equity or equity related instruments while treating sustainable debt as standard asset in the books of lending banks. There is no relaxation in either interest rates or repayment of loan. Bhushan Steel's lawyer had said at the NCLT that the company's restructuring plan under S4A was at an advanced stage of approval. He argued for a reprieve from bankruptcy proceedings. Some bankers are not very keen on S4A, instead they are insisting on deep restructuring.

"The S4A kind of a restructuring would dilute promoters' holding, which is around 58 per cent. Given market capitalization of just Rs 1,400 crore against a debt of Rs 40,000 crore, the equity expansion under S4A does not make sense," says a banker. There is a need for deep restructuring. But the joker in the pack could be Sajjan Jindal owned JSW which is keen to bid, provided the price is right.

Essar Steel

The Ruias failed to read the writing on the wall while aggressively pursuing steel expansion and acquisitions during the boom time about 10 years back. The $18-billion Essar Group's steel unit is now bracing for bankruptcy proceedings.


Essar Steel was the first Indian company to enter corporate debt restructuring way back in 1999. The company not only wriggled out of it, but also thrived with the boom in steel prices. It also made big acquisitions - Canadian steel maker Algoma Steel and the iron ore mines in Minnesota, to name a few. Striding on, the company also made plans to ramp up its production at the Hazira plant - from 4.6 mtpa to 10 mtpa. But the heydays ended as steel prices crashed and the government cut Essar Steel's supply of natural gas soon after the production from Reliance Industries' Krishna-Godavari basin started shrinking. These events delayed the company's expansion and escalated costs. Between 2007/08, and 2013/14, the steelmaker's debt soared five-fold while sales grew only 20 per cent; capacity utilisation fell to 20-30 per cent after the capacity expanded to 10 mtpa in January 2012.

Prashant Ruia, Group CEO

There is no doubt that Essar Steel is recovering with improved capacity utilisation and operating performance. Bankers were considering a deep restructuring when the RBI's bankruptcy diktat came in. The Ruias approached the Gujarat High Court challenging the very order of the RBI. It said, "referring the company to the bankruptcy code at this stage may result in deterioration of the company's operations and, in fact, may delay the resolution discussion with the banks." Since the bankruptcy code requires the company board to be suspended, Essar stated that "...the impact of the decision would be severe and may result in the company going into serious problem because of the change of management."

The Ruias will now be filing their objections against bankruptcy at the National Company Law Tribunal. The bankers are, in fact, ready with a restructuring plan. Based on a techno-feasibility study, they have arrived at an unsustainable debt portion of around 30 per cent. The broad agreement among lenders is to convert the unsustainable debt into equity. On the sustainable portion, the tenor and interest of the loan would get adjusted to provide relief to the company. There will be a fresh issuance of equity to lenders, bringing down the stake of Ruias who currently hold most of the equity. "Technically, there will not be a haircut in a deep restructuring, but time-value wise there is (a haircut)," admits a banker. The bankers, led by SBI, would gain from any upside in the equity value over a longer period of time. But this is also subject to other non-bank creditors agreeing with the proposal by the banks.

Bhushan Power & Steel

There was a bitter and prolonged family dispute over the assets of Bhushan Steels patriarch Brij Bhushan Singal. After a decade long tussle the group eventually divided in 2011. The assets were split between Singal's two sons - Sanjay and Neeraj. The elder son, Sanjay, runs Bhushan Power and Steel. The company has a steel capacity of 2.3 mprta and a 503 MW captive power plant.


In two years until March 2016, the company accumulated a loss of Rs 3,160 crore following the high cost of raw materials for making steel and power production. Revenues fell to Rs 7,738 crore from Rs 10,425 crore owing to the lower price of steel. The company is now facing bankruptcy proceedings at the Delhi bench of the National Company Law Tribunal (NCLT). An email sent to Sanjay Singal went unanswered.

Sanjay Singal, CMD

The bankers are keen to bring the company under the "Scheme for Sustainable Structuring of Stressed Assets" (S4A). The promoters hold more than 90 per cent stake in the company and an equity dilution can easily happen while keeping Singal at the helm of affairs. The other option could be deep restructuring wherein the bankers extend the repayment period and also provide interest rate concessions.

A section of the bankers are a bit sceptical about the possibility of turning around the company because of certain investigations by government agencies.

Alok Industries

Textile major Alok Industries, which exports to 90 countries, diligently followed the strategy of creating globally competitive capabilities across the value chain - from yarn to specialised products. While the strategy was right, financed diversification outside its core textiles manufacturing operations in India - such as the acquisition of Mileta in Czech Republic, Store Twenty One in the UK, and real estate investments under Alok Infrastructure - marred the fortunes of the company.


The Ahmedabad bench of NCLT has already admitted SBI's insolvency application against the company. Two years ago, the bankers failed to convert a part of the loan into equity under the SDR route. The idea was to change management control from the Jiwrajka family. Currently, the company's debt is in excess of total equity in the system - debt of Rs 22,075 crore against equity of Rs 1,357 crore. Promoters' equity is too low at 28 per cent. Out of the total debt, only Rs 6,000-8,000 forms sustainable debt. The company, say bankers, does not fit into S4A as that requires 50 per cent debt to be sustainable. They see no point in converting debt into equity as the company has lost significant market share. The company's revenues have crashed from over Rs 20,000 crore two years ago to Rs 8,000 crore.

"The debt overhang will never create value for equity shareholders," says a banker. The only solution is to write off the debt. Demerging its businesses, especially real estate, and bringing in a strategic investor is another viable option under the Bankruptcy Act. An email sent to the company went unanswered.

Amtek Auto

In 2015, Amtek Auto faced a cash flow mismatch for the first time in its history due to the global slowdown in the automotive industry. Problems worsened in the last fiscal when losses ballooned to Rs 2,533 crore on revenues of just Rs 1,999 crore.


Founder Arvind Dham, had a mercurial rise starting in the late 1980s as a supplier to Maruti Suzuki. Dham emerged as a supplier to global giants like Daimler-Chrysler and Renault Nissan. Over the last three decades, Dham expanded domestic capacity and made global acquisitions. Amtek has 19 plants across the US, UK, Mexico, Brazil, Germany, Italy and Hungary. It had almost doubled capacity in the crankshaft, flywheel and gear assembly anticipating strong demand from local car manufacturers. But utilisation languished below half. A slew of overseas acquisitions and domestic capacity addition leveraged the balance sheet and increased interest outgo.

Arvind Dham, Chairman. Photo: Vivan Mehra

The Chandigarh bench of NCLT is hearing the application of lead bank Corporation Bank. In Amtek Auto, banks are in agreement to bring new investors and sell international assets and non- core assets. The company has made efforts to sell German Amtek Tekfor, which it bought five years ago for some Rs 6,000 crore. Overseas subsidiaries like Amtek Integration are making profits. "They also own some bad assets where no value is expected," says a banker. Banks say lenders have to bring operating companies into the bankruptcy code. Currently, Amtek has a dozen subsidiaries which in turn have another 42 subsidiaries. In addition, there are half a dozen joint ventures and associates. Bankers believe that strategic investors could be the way out to resolve the assets.

"If not handled properly, the company may go into liquidation," says a consultant. Amtek has also borrowed at the subsidiary level, which could complicate matters. Private equity player KKR has launched bankruptcy proceedings against overseas arm Amtek Global Technologies, which owes the PE firm close to $450 million in debt. The promoter is willing (and even mulling selling some personal assets), but multiple subsidiaries and financial creditors could complicate matters. Amtek did not respond to questions raised by BT on the way forward.

Monnet Ispat & Energy

In 2010, Sandeep Jajodia, Founder and Chairman of Monnet Ispat and Energy, was keen to expand the company's primary steel capacity by 1.5 million tonne to triple its revenue to Rs 5,500 crore and quadruple profits to Rs 1,000 crore in two years. Seven years later, the revenue dipped to Rs 1,412 crore, registering a loss of Rs 2,132 crore with a debt load of Rs 10,000 crore, which could be pushing it to bankruptcy.

Monnet had evolved from a sponge iron manufacturer to a diversified steel, power and mining company since its inception in 1994. But its fortunes turned when the Supreme Court deallocated its coal blocks in 2014. Recently, the NCLT's Mumbai bench has admitted Monnet's case for initiating insolvency proceedings. The lending banks, led by the State Bank of India, had converted a part of its loan into equity. Its debtors are now sitting pretty with 51 per cent equity stake while the promoters' hold only 25 per cent.


The company's equity capital has expanded from Rs 65 crore to Rs 200 crore, and it is still attractive for a buyout. The bankers, however, admit they will have to take a haircut as the current revenues cannot service the debt. Steel tycoon Sajjan Jindal (also Jajodia's brother-in-law) and private equity major Blackstone (which holds 2.27 per cent stake in Monnet) have already shown their interest, but have not started any discussion with the banks, according to sources. Jajodia did not respond to Business Today for this story.

Era Infra Engineering

Delhi-based Era Infra Engineering, run by civil engineer-turned-entrepreneur Hem Singh Bharana, has an interest in real estate, power, financial services, and construction equipment leasing, and even opened a management school once. The EPC company, with a presence in power and industrial segments, started sliding from 2011/12 when the slump in construction and infrastructure sectors hit its operations. Other factors such as land availability and green clearances also escalated costs. Era was unable to recover in following years as turnover crashed and interest plus other operating costs reduced its cash flow.


As Era went down, operational creditors filed 18 winding-up petitions in High Courts much before the bankruptcy code became operational. The Delhi bench of NCLT will soon decide on how to go ahead with the bankruptcy proceedings with winding-up petitions already in the civil courts. The Union Bank of India, the lead lender in this case, is now trying to shift the winding-up cases to NCLT for hearing. "The operational creditors can fight these cases at NCLT as it has the power to rule on these matters. We are hopeful of getting a favourable response from the High Courts," says a banker on condition of anonymity. The bankers are non-committal regarding further funding to the company by way of restructuring.

Manoj K. Singh, the lawyer who represents Era at the NCLT, says the company has a huge claim to the tune of Rs 10,000 crore from its projects, including roads, due to deviations in contracts and cost of delays. "It affected the health of the company," he says. The bankers want to tread cautiously due to multiple cases filed against Era. They may recover some money through the sale of the SPVs, but no resolution is in sight yet.

ABG Shipyard

Three years ago, promoters led by Rishi Agarwal held a 68 per cent stake in ABG Shipyard, once India's largest private sector shipbuilding yard. Though business started slowing down post the 2008 global meltdown, Agarwal the nephew of Essar's Ruia brothers never lost faith and kept increasing the stake from 57 per cent in March 2009. Today, the promoters' stake at 10 per cent is less than that of ICICI Bank. Banks led by ICICI Bank already have 51 per cent equity in the company after invoking SDR in 2015.

In the past, there was interest shown by various group including Anil Ambani's Reliance Defence, Shapoorji Pallonji Group, Liberty of UK and Cochin Shipyard. Bankers are hopeful that the deal would be sealed soon under the bankruptcy code. The NCLT bench of Ahmedabad will soon admit the company based on the application of lead bank ICICI Bank.

Bankers are in complete control of the company with a majority stake. But consultants say the equity shareholding of banks is of little consequence because debt has to be right-sized to get the company back on track. "There has to be a resolution plan," says a consultant. The company's debt is at Rs 8,731 crore against revenues of a mere Rs 38 crore. Mumbai-based ABG Shipyard is a good candidate for complete sale to a new promoter or liquidation.

Dhananjay Datar, CFO of ABG Shipyard says the company is fully supportive of every action of lenders which can help the company come back to life." This is one of the best and modern shipbuilding yards in India. It is the worst business cycle that made the company see these times. We firmly believe that given an opportunity, ABG will come back to the forefront," he says.

Rishi Agarwal, Chairman

The shipping and shipbuilding industry has been going through a deep slowdown because of excess capacity globally. Other shipyards like Bharati Shipyard, Pipavav Shipyard and L&T Shipyard are also struggling.

Bankers' privy to stake sale discussions say they were under initial discussions with Liberty of UK when the RBI's directive for bankruptcy proceedings came. There is now every possibility that lenders would continue discussions with Liberty. Some say there is a possibility of competitive bidding because of multiple interested parties. "You just cannot handover a company to a bidder. There will be challenges in courts," says a corporate lawyer.

Jaypee Infratech

Jayprakash Gaur, 86, is a rare civil engineer who has lived the entire history of Indias post-independence infrastructure building. He has built his business according to one of his famous quotes: "Every time someone tried to explain to me that there are limits to what one man can do, I pointed to the boundless sky and said, there is the limit."

Pushing the limits has left Jaypee Infratech - with interests in engineering & construction, cement, power and real estate - with humongous liabilities. Bankers, led by IDBI Bank, have taken Jaypee Infratech to the NCLT for bankruptcy proceedings. The company is developing the Yamuna Expressway project between Noida and Agra with township area totalling 25 million square metres. The company did not respond to questions from Business Today.

Over the last three years, the company has been on an overdrive to sell assets - hydropower projects in Himachal Pradesh to Sajjan Jindal's JSW and cement units to Orient Cement and A.V. Birla's Ultratech. "We have always worked closely with banks. We divested and reduced liabilities according to their advice," says an executive, on condition of anonymity.

Bankers say the value of the company's assets is far more than its debt. "But the value may take a long to mature and, hence, there is a liquidity mismatch," says a banker.

There is also a view that the banks may take equity as promoters still hold a 72 per cent stake. The market capitalisation of the company is Rs 3,000 crore. But some banks might not be receptive to the idea. "Why should a bank move from a secured position to equity?" says a banker.

Manoj Gaur, Chairman & CEO. Photo: VIVAN MEHRA

The company's troubles started with the National Green Tribunal's 2013 ruling staying construction within 10 km of the Okhla Bird Sanctuary. This halted construction of apartments along the Noida-Greater Noida Expressway. The revenue from real estate has fallen drastically in the last two financial years. This resulted in a 60 per cent drop in the companys revenues in 2016/17 from Rs 3,000 crore to less than Rs 1,000 crore.

The lead bank was considering taking over some assets and bringing in a new developer. "There is a huge inventory which can be sold," says a banker.

The resolution looks certain in case of Jaypee Infratech.

With inputs from Sumant Banerji

Electrosteel Steels

This mid-sized steel maker from Kolkata got embroiled in problems because of delay in supply of equipment and structures for its plant. The company, promoted by 61-year-old Umank Kejriwal and his brother Mayank, exports billets, wire rod and TMT bars to neighbouring countries such as Nepal and Bangladesh. As a result of the delay and shortage of funds, the company incurred significant losses, leading to erosion of net worth. Electrosteel's parent company, Electrosteel Castings, made a profit of Rs 165 crore on a revenue of Rs 2,120 crore in the last financial year; it has a market value of Rs 1,135 crore.

The lead bank, State Bank of India, or SBI, has started bankruptcy proceedings against the company in NCLTs Kolkata bench. The bankers, who say that the promoters are cooperative, are considering giving priority to lenders who put more funds in the company so that they are paid first in case of liquidation. The company needed Rs 1,200-1,500 crore for completion of the steel plant. Its combined capacity is 2.5 million tonnes. At present, 1.5 million tonnes is complete.

The Piramal Group had shown interest in providing additional funds but backed out. Edelweiss Group, which has an asset reconstruction company, is also looking at the option of offering a line of credit. Bankers say the money would come as promoters are cooperating with the lenders.

Efforts to contact the company did not succeed.

Jyoti structures

Jyoti Structures has been grappling with multiple problems. Delayed payments after execution of orders hurt this maker of power transmission towers. The Mumbai-based company's aggression in the overseas market too did not pay off. Then Jyoti, a leading Engineering, Procurement, Construction player in the power sector, made profits until 2014 but was subsequently hit by rising interest costs - they have shot up five times in the last five years after loan defaults. The promoters, Thankur, Valecha and Mirchandani family, have just 18 per cent stake. The bankers did invoke Strategic Debt Restructuring (SDR) Scheme in 2015 to take management control, but they failed to convert their part of debt into equity in 210 days, as stipulated in the guidelines. Later, the bankers tried hard to sell the company outside SDR but that also didn't fructify. The bidders included Shriram, Essel, KEC, Kalpataru and Dubai-based Amin Group.


Jyoti was the first company, among the 12, referred for bankruptcy proceedings. The Mumbai bench of NCLT has initiated the process and appointed consultant BDO LLP as the insolvency professional based on the recommendations by the lead lender SBI. "We will now revive the stake sale plans under bankruptcy code," says a banker. The company is a good candidate for bringing a strategic investor or a complete change of management. The promoters dont have enough equity to fight back. If need be, the bankers are willing to convert a part of the debt into equity to take control of Jyoti for subsequent sale of business under the bankruptcy code. An email sent to the company management went unanswered.

The net worth of the company has been completely eroded. The bankers claim that a new buyer would be found soon for Jyoti Structures but the consultants say it won't be easy.

Research inputs by Avneet Kaur

@anandadhikari; @nevinjl

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