AN ASSIGNMENT ON

Understanding Colossal Haircuts &Bankruptcy Status Of

Bhushan Power & Steel Ltd.
SUBMITTED BY

GRROUP :-B4

SUMITTED BY:- SUBMITTED TO:-

ESHA PRIYA(110079) Prof. SANTOSH KUMAR
GAUTAM PRAKASH(110080)
HARSHITA KHASYAP(110081)
KOMAL KRITI(110083)
KUMARI SNEHA(110084)
 BHUSHAN POWER & STEEL Ltd

Company Background:-
Bhushan Power & Steel Limited (BPSL), is a fully integrated 3.5 Million TPA Steel Making
Company having turnover of INR 11,288 Crores (USD 1,858 Million) FY14.The Company is
certified to ISO 9001:2008 & TS-16949 Quality Standards and ISO 14001:2004 Environment
Management Standards. BPSL is a leading manufacturer of flat and long products and have
state-of the-art plants at Chandigarh, Derabassi, Kolkata and Orissa in India. These plants
manufacture value added products covering entire steel value chain right from Coal Mining
to manufacturing Pig Iron, DRI, Billets, HR Coils, CR Coils, GP/GC Sheets, Precision
Tubes, Black Pipe/GI Pipe, Cable Tapes, Tor Steel, Carbon and Special Alloy Steel Wire
Rods and Rounds conforming to IS and international standards. The Company have
successfully commissioned a 3.5 Million TPA Greenfield Steel and Power Plant in Orissa
with HR Coil making facility - First in Private Sector in the State of Orissa. For this plant,
technology and equipments were sourced from leading world-renowned companies viz.,
Lurgi, ABB Ltd., SMS Siemag, SMS Meer Danieli, LOI Tenova, Kocks etc. BPSL has a
wide marketing network in both India (comprising 35 sales offices) and abroad for selling its
value added product range. The rock-solid foundation combined with continuous upgradation
and innovation has enabled the Company to surpass its goals constantly. BPSL's end-to-end
portfolio has enabled it to offer a wide spectrum of products at superior quality consistently
surpassing customers' specifications. In addition to export thrust, BPSL cater to the domestic
steel requirements of fast-growing sectors like automotive, white goods, construction /
infrastructure, furniture, fasteners, telecommunication, power etc. With a view to make its
presence in a big way in Special Alloy Steel Long Product business, BPSL has commissioned
a most modern state of the art Wire Rod-cum-Bar Mill and is commissioning a host of
downstream finishing facilities viz., Heat Treatment facilities, Bright Bar manufacture etc.
Calculation of Net sales, Profit After Tax, total Assets, Total Equity, Total Debt, Asset
Turnover, Equity Turnover And Profit Margin from which we did DuPont analysis.
DuPont Analysis
The DuPont analysis (also known as the DuPont identity or DuPont model) is a framework
for analysing fundamental performance popularized by the DuPont Corporation. DuPont
analysis is a useful technique used to decompose the different drivers of return on equity
(ROE). Decomposition of ROE allows investors to focus on the key metrics of financial
performance individually to identify strengths and weaknesses

Graphical representation of Bhushan Power and steel DuPont:-

2500

2000

1500

year
1000
dupont

500

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
-500

From the above graph we can see that in 2001 the company used its assets efficiently to
generate sales. It was also seen that the shareholders were also satisfied with the company
performance. The company’s operations was also up to the mark.

But later on the company started to lose the interest of its shareholders and its major
customers also. Sale of the company started declining due to not using the assets efficiently.

By 2017 the company was in loss because its inefficiency. The graph is clearing showing the
downfall of Bhushan Power and Steel.
 News and Press Release

December 5, 2017

Bhushan Power and Steel was admitted by the insolvency court on July 26 on a plea by
Punjab National Bank. Once a case is admitted, the IRP has to come up with a resolution plan
within 180 days, extendable by another 90 days.
“The delay in finalising the evaluation criteria has made the IRP to extend the deadline for
submitting resolutions plans. Also, there were hopes that some other companies might submit
their plans. However, no addition to the list of suitors is expected, even as the promoter
family is unlikely to take part in the final race,” the source said.
The evaluation criteria has now been finalised and approved by the CoC.

In September, insolvency resolution professional (IRP) Mahender Khandelwal had called for
qualification documents from interested parties on or before October 6.

The insolvency resolution process for Bhushan Power and Steel is set to enter its second leg,
with the committee of creditors (CoC) about to circulate bid documents among at least eight
companies and financial institutions which have evinced interests in acquiring the steel firm.
“Bid document is under finalisation and will be circulated within the next two-three days,” a
source said.

Oct 26, 2018

JSW plans ₹5,000 crore rights issue to buy Bhushan Power

Sajjan Jindal’s JSW Steel plans to raise up to ₹ 5,000 crore through a rights issue, so as
to tie the funding in place to acquire bankrupt Bhushan Power and Steel. With the
objective of further strengthening the balance sheet, the board of directors has
accorded in-principle approval for a rights issue of up to ₹ 5,000 crore."
JSW Steel has submitted a bid of ₹ 19,700 crore for the Bhushan Power and Steel
asset, which is the highest of the three submitted. Mint had reported on October 18
that lenders to the bankrupt asset were overwhelming in their support for JSW
Steel’s bid, though these details are not public yet.
Feb 13, 2019

JSW Steel set to acquire Bhushan Power

JSW Steel had made a Rs 19,650-crore offer, which included upfront payment of Rs 19,300
crore. On tuesday went procedurally a step closer to acquiring an asset in bankruptcy-induced
ownership change after the administrator overseeing the sale of Bhushan Power and Steel
issued a letter of intent (LoI) in favour of India’s biggest maker of the alloy.

March 9, 2019
NCLT asked to decide on JSW's bid for Bhushan Power & Steel by March 31
Bhushan Power promoter Sanjay Singal through his counsel offered to settle all dues of the
lenders

The National Company Law Appellate Tribunal (NCLAT) Friday directed the Delhi bench of
the NCLT to decide over JSW Steel's bid for the debt-ridden Bhushan Power & Steel by
March 31."We expect adjudicating authority (NCLT) to decide the case at an early date to
ensure that the matter is decided before the end of this financial year," the appellate tribunal
said.

"Liberty is given to adjudicating authority to decide who should be heard as representative of

operational creditors or promoters or dissenting financial creditors, if any. Earlier, on
February 4 the NCLAT had dismissed the plea of Tata Steel and upheld lenders' decision to
approve resolution plan of JSW Steel for Bhushan Power & Steel.

Tata Steel had challenged an NCLT order that had allowed the CoC of Bhushan Power and
Steel to the resolution plan submitted by Liberty House Group. Tata Steel had contended that
NCLT cannot provide numerous opportunities at the belated stage. The NCLAT had said the
Committee of Creditors' (CoC) decision was well within its rights to negotiate better terms
with resolution applicants. JSW Steel had revised its offer from Rs 11,000 crore to Rs 18,000
crore and later to over Rs 19,000 crore, whereas Tata Steel's last offer was at Rs 17,000 crore
after it had refused to revised its bid.

May 30, 2019

NCLT approves Tata Steel's bid for Bhushan Energy; rejects objections

As part of the plan, Tata Steel will offer an upfront payment of Rs 730 crore. The principal bench of
the National Company Law Tribunal (NCLT) on Thursday approved Tata Steel’s nearly Rs 800-crore
bid to acquire Bhushan Energy. The NCLT, while approving this bid, also rejected
Bhushan Energy’s former promoter Neeraj Singhal’s objections to Tata Steel’s bid for the
debt-laden company.

July 3, 2019

SC stays high court ruling, clears deck for NCLT order on Bhushan Power
Punjab and Haryana HC had asked firm's CoC and NCLT to give firms' ex-directors a
hearing though principal bench of NCLT had already reserved its order on a resolution plan
by JSW Steel
Supreme Court stayed an order of the Punjab and Haryana High Court in which it had asked
the Committee of Creditors (CoC) of Bhushan Power and Steel Limited and the National
Company Law Tribunal (NCLT) to consider the objections raised by the former directors of
the company before finalising any resolution plan. The directions by the high court were
issued despite the Principal Bench of NCLT at New Delhi having already reserved its
judgment on a resolution plan for Bhushan Power, submitted by JSW Steel.

On April 18, a former director of Bhushan Power Ravi Parkash Goyal approached the high
court with a plea that he had neither been heard by the CoC of Bhushan Power nor been heard
appropriately by the lender or the NCLT. The high court, after hearing Goyal’s petition, had
directed that Bhushan Power CoC give him a fresh hearing and that the NCLT first decide on
the issue of why he was not provided with the resolution plan despite clear orders in this
regard from the Supreme Court in other cases. A two judge bench of the high court had also
said that any decision taken by the NCLT would be “kept inoperative for two weeks” so as to
enable Goyal to challenge it in accordance with law.

Bhushan Power lenders had later challenged the high court’s order in the National Company
Law Appellate Tribunal (NCLAT), arguing that the high court did not have jurisdiction to
adjudicate on the issue since the NCLT was already hearing the same. While passing its order
in the issue, though the NCLAT had refrained from making any comments on the high
courts’ order, it had said that the NCLT should pass its judgment in the issue “uninfluenced
by any order except the decision of this appellate tribunal and the Supreme Court”.

Bhushan Power owes close to Rs 37,248 crore to a consortium of lenders led by Punjab
National Bank. It is the sixth out of the 12 large stressed accounts identified by the Reserve
Bank of India.

July 15, 2019

Still want Bhushan Power, but reports of fraud a worry, JSW tells NCLT
NCLT said that alleged fraud reports will not have any impact on the insolvency resolution
process and JSW's resolution plan for BPSL
JSW Steel on Monday told the National Company Law Tribunal that the company is not
backing out from the ongoing resolution process of Bhushan Power & Steel despite reports of
alleged fraud by its former promoters. During the proceedings in NCLT, counsel appearing
for JSW Steel informed the tribunal that it was anxious about the alleged fraud reports and
needs to know what is going inside Bhushan Power & Steel Ltd (BPSL).

A two member NCLT bench headed by the President Justice M M Kumar asked the
Resolution Professional (RP) of BPSL to hand over a copy of the forensic report to JSW
Steel. NCLT said that alleged fraud reports will not have any impact on the insolvency
resolution process and JSW's resolution plan for BPSL. NCLT has to take a decision over the
lenders' approval of the resolution plan of JSW Steel for BPSL.

State-owned lender Allahabad Bank had reported fraud of over Rs 1,774 crore by BPSL to
the Reserve Bank of India. Earlier, PNB reported a fraud worth Rs 3,805.15 crore by BPSL
by misappropriating bank funds and manipulating its books of accounts. Around 85 per cent
of PNB's Rs 4,399 crore exposure to the company had been siphoned off. Investigate agency
CBI has already registered complaint in April names several other lenders.

According to the CBI, BPSL diverted around Rs 2,348 crore through its directors and staff
from the loan accounts of PNB, Oriental Bank of Commerce, IDBI Bank and UCO Bank into
the accounts of more than 200 shell companies without any obvious purpose.

September 5, 2019

NCLT approves JSW Steel's $2.7 billion bid for Bhushan Power & Steel
Bhushan Power will add 3.5 million tons a year capacity to the Sajjan Jindal-led mill's
operations

An Indian bankruptcy tribunal approved JSW Steel Ltd.’s $2.7 billion bid for Bhushan Power
& Steel Ltd., making it the second asset the steelmaker has bagged under the nation’s
insolvency process. The National Company Law Tribunal approved the offer Thursday.
Bhushan Power will add 3.5 million tons a year capacity to the Sajjan Jindal-led mill’s
operations and expand the Mumbai-based company’s footprint to the eastern part of the
country where it has no presence. JSW bid about 197 billion rupees, higher than rivals Tata
Steel Ltd. and Liberty House Group.
 INSOLVENCY
It was supposed to be the magic pill that would revitalise the Indian banking system, curing
the $210-billion bad loan problem. Instead, the Insolvency and Bankruptcy Code (IBC) is
creating more chaos and confusion rather than clarity and clean-up.

It’s not a joke — the IBC is heralded as the biggest reform in the Indian banking sector thus
far. Introduced in 2016, the IBC replaced existing schemes such as Corporate Debt
Resolution (CDR) and Strategic Debt Restructuring (SDR). Under the IBC, stressed assets
are referred to the National Company Law Tribunal (NCLT) to find a resolution for their
insolvency, failing which they will be sent to liquidation. As a first step, in June 2017, the
Reserve Bank of India drew up a list of 12 large accounts, which made up 25% of the
industry’s gross non-performing assets (NPAs), for resolution under the IBC. It included
names such as Essar Steel, Bhushan Steel, Binani Cement among others. A 270-day deadline
was set for lenders to find a resolution plan. With deadlines ending this month, we finally
have one resolution to show.

Tata Steel has taken a controlling stake of 72.65% in Bhushan Steel after settling 35,200
crore of the loans owed by the latter. The lenders, who will hold 12.25% of Bhushan Steel,
have taken a 37% haircut on their outstanding loans (56,079 crore). SBI, which has the
highest exposure of 12,872 crore to Bhushan Steel followed by PNB (4,904 crore) and ICICI
Bank (2,499 crore), will see its profits bump up during the first quarter of FY19 due to
provision write-backs as the asset turns standard in its books. Tata Steel will now deal with
lawsuits filed by L&T, that wants to be treated as a secured creditor, and the erstwhile
promoter, Neeraj Singhal, who has challenged Tata Steel’s eligibility as a bidder under
Section 29A. Being the first case to be successfully resolved under IBC, Bhushan Steel is
probably a silver lining among several murky clouds. All the 11 pending cases have a sob
story of their own. Vedanta’s 5,320-crore-bid for Electrosteel is under the NCLT scanner
because it implies a haircut of 60% for the lenders. The total exposure of the banks to
Electrosteel stands at nearly 14,000 crore.

The cases of Essar Steel, Bhushan Power & Steel, and Binani Cement have also turned into a
slugfest between bidders. Moreover, where steel assets have drawn a lot of interest from
bidders (see: Centre of attraction), have no potential bidders. Lanco Infratech was among the
companies listed by the RBI in its second list that came out in 2017-end. The list, which
accounts for 15% of bad loans, includes companies such as Videocon, Orchid Pharma and
Ruchi Soya. Apart from large corporate houses, around 500 small and medium companies
have been referred to the NCLT and are under various stages of resolution. Their fate looks
even more ominous, with a majority of them finding no takers. Only 60 of the lot have been
able to find a resolution or have been sent for liquidation. While bidders fighting over assets
is definitely a good problem for the lenders, the numerous litigation by companies who end
up on the losing side, promoters, and even employees seem to be delay tactics to derail the
process. Can the IBC live up to its promise?
Reforms Galore:-
The banking sector has seen its fair share of reforms over the years. The Securitisation and
Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (Sarfaesi
Act), allowed secured lenders to take over the management of the company, but it wasn’t
effective in recovering bad loans since banks didn’t have the bandwidth to run the companies.
Next came CDR, which gave borrowers more time to repay the loans, but it worked only in a
few cases where the defaulters wanted to repay. SDR and the Scheme for Sustainable
Structuring of Stressed Assets (S4A) even gave banks the power to convert their debt into
equity. However, as owners, they had to keep the assets running till they found buyers. In a
downturn, this wasn’t an easy task.

Much of the bad loans problem, in fact, took root when evergreening of loans — where both
the tenure and interest rates were allowed to be restructured — was permitted under CDR.
This led to postponements instead of resolution of issues. In 2015, RBI decided that there
should be a fair recognition of accounts and these turned into NPAs, leading to their multi-
fold increase. Thus, the IBC was introduced to address the NPA situation in a more decisive
manner.

While clear-cut processes have been put in place under IBC and timelines are definite,
execution is lagging, resolutions seem hard to come by, and bankers are anxious about big
haircuts. According to a report by CLSA in March 2018, the haircut on NCLT cases will
range from 20% to 90%.

While the total loss will be less than 60%, the first list, comprising Bhushan Steel, Essar Steel
and Binani Cement, is likely to see better recovery rates of 52% than the second one. For the
second list of 35 companies, whose loans aggregate to about 1.3 lakh crore, the haircut is
expected to be around 68% (see: The buzz cut).

Tightening The Screws:-

Even as the IBC battles all kinds of challenges, RBI has been tweaking the norms. In
February 2018, the central bank came up with a revised framework for distressed assets,
directing banks to initiate a resolution plan at the first instance of default in cases where the
exposure is over 2,000 crore. The banks have 180 days to implement a resolution, failing
which the asset will be referred to the NCLT, and bankruptcy proceedings will begin.
Additionally, the moment the loan is referred to the NCLT, banks need to make a provision
of 50% on the loan and 100% if the asset faces liquidation. If the bank is able to garner more
money from the sale of assets that was provisioned, it can be written back as profits.

Rajnish Kumar, Chairman - State Bank of IndiaBanks will no longer chase topline growth,
the focus will be on risk-adjusted return on capital. The quality of assets will thereby
improve- Rajnish KumarChairman, State Bank of IndiaThe default rules may seem stringent,
but bankers and industry insiders feel it will ensure better discipline among all parties
involved. “Banks will no longer chase topline growth, the focus will be on risk-adjusted
return on capital. The quality of assets will thereby improve,” says Rajnish Kumar, chairman,
SBI. On the other side of the spectrum, the risk of losing their company is likely to keep
promoters in check. “For the first time, the promoters are running a real risk of losing their
companies. Banks, too, will have to change their culture and proactively look for a resolution
since the regulator is keen on keeping the process time-bound,” says Siby Antony, CMD,
Edelweiss Asset Reconstruction Company, which became the second largest lender in Essar
Steel after SBI by aggregating debt from six banks. “It will bring about better discipline
among both borrowers and lenders and there will be early detection of problems,” he says.
According to Antony, ARCs such as Edelweiss, who successfully turned around Karaikal
Port (when Edelweiss took over Karaikal Port in 2015, it had an Ebitda of 60 crore, which
has more than tripled to 200 crore in FY18) and Ballarpur Industries (the company had zero
Ebitda in 2017, and is now clocking a monthly Ebitda of 45 crore within a year’s time), can
play a significant role in the resolution process. But the said discipline doesn’t come easy to a
majority of Indian promoters. “Many Indian promoters have no regard for financial
covenants. Overseas, investors take covenants seriously and missing even one of them is a
serious offence. Even over-levered financing of the projects, in a few cases as high as 80:20
in favour of debt, will shift more towards equity,” says Prateek Diwan, executive director,
Arpwood Capital, who has worked on almost half of the first dirty dozen IBC cases.

Legal Woes:-
While the expectations are high, the first few cases will be the litmus test for the IBC. Binani
Cement, for instance, will test the sanctity of the IBC. Under its initial resolution, Committee
of Creditors (CoC) had accepted Dalmia Bharat’s bid of 6,750 crore. UltraTech, which
initially offered 6,570 crore, increased its bid by 700 crore and agreed for the full settlement
of creditors’ dues before the CoC’s decision came. That set the stage for a long tussle.
Alleging that the sale to Dalmia Bharat-Bain Capital combine was not transparent, UltraTech
made an offer to Binani Industries to buy 98.43% in its cement arm, provided the insolvency
process was terminated. After approaching the NCLT to terminate the proceedings, Binani
even made an offer to repay creditors within two weeks and moved the Supreme Court to
seek permission for an out-of-court settlement. The Supreme Court, however, refused the
move, saying companies cannot bypass the code and referred the case back to the NCLT. Not
giving up, UltraTech has now increased its offer by another 700 crore to 7,990 crore,
widening the gap between its bid and Dalmia’s by 1,290 crore.

Siby Antony CMD, Edelweiss ARCBanks will have to change their culture and proactively
look for a resolution since the regulator is keen on keeping the process time-bound- Siby
AntonyCMD, Edelweiss ARCIn its latest offer, UltraTech assures to pay all creditors in full,
including vendors, barring related party transactions of Binani Cement promoters. Dalmia
Bharat, on the other hand, had offered to settle the dues of operational creditors assessed by
the administrator at 503 crore for 151 crore. UltraTech has offered to pay 443 crore. Given
the number play, the Kolkata bench of bankruptcy court has directed banks to look at
UltraTech’s revised bid, adding a new twist in the tale. The court, in its decision, said that the
CoC is bound to ensure value maximisation for Binani shareholders and lenders. Thus, if a
revised offer is higher than H1 bidder and satisfies the claims of all stakeholders, then it must
be considered.

While Binani Cement’s CoC has asked Dalmia Bharat to match UltraTech’s revised offer, the
company is unlikely to do so, stating that the deal was nearly 3x the liquidation value of
2,300 crore. The CoC, therefore, is likely to go with UltraTech’s bid. “While the deal value
does increase, it shows utter disregard for the process. If they felt the asset was worth nearly
8,000 crore, why didn’t they put that as their first bid? Given that the bids were so close,
would they have revised their bid if they had won?” asks an advisor on the deal.

The IBC does allow creditors to negotiate with the highest bidder for a better price, but
Dalmia Bharat promoters are miffed. “You have to respect the process. The rules are very
clearly laid out for all the players in the game. If UltraTech wins, every unsuccessful bidder
could approach errant promoters and strike a deal to fund the repayment of the liabilities with
banks,” argues Mahendra Singhi, group CEO, Dalmia Bharat.

Prateek Diwan, Executive director, Arpwood CapitaIndian promoters have no regard for
financial covenants. Overseas, investors take covenants seriously and missing even one is a
serious offence- Prateek DiwanExecutive director, Arpwood CapitaAnother case that is
turning into a big tussle between bidders is Essar Steel, which owes more than 49,000 crore
to over 30 banks. Initially both bidders — ArcelorMittal and Numetal — were declared
ineligible according to Section 29A that bars promoters and related parties of companies with
NPAs of over 12 months, or having pending regulatory issues, or criminal proceedings
against them to bid for their own companies or others referred to the NCLT.

ArcelorMittal had a minority stake in Uttam Galva and KSS Petron, which had unpaid dues
of over 7,000 crore, and Essar Steel promoter Ravi Ruia’s son was a beneficiary of a trust
which held 25% equity in Numetal Mauritius when the first bid was submitted, rendering
them ineligible. Thus, the creditors called in for a second round of bids. The NCLT then ruled
that the first round of bids needed to be reviewed by the CoC and both parties have to be
given time to repay their dues in order to become eligible. The CoC has since asked both the
companies to clear their dues.

Mahendra Singhi Group CEO, Dalmia BharatIf UltraTech wins, every unsuccessful bidder
could approach the errant promoter and strike a deal to fund the repayment of liabilities-
Mahendra SinghiGroup CEO, Dalmia BharatArcelorMittal has already parked 7,000 crore in
SBI’s escrow account in London to become eligible for the bid. At least in the case of Uttam
Galva, these are dues that the banks have been chasing for more than five years now. While
Arcelor’s bid of 32,000 crore proposes a 35% haircut, the banks get closure for two long-
standing NPAs. Numetal, which had earlier contested that the second round of bidding should
not be considered, has now changed its stance and wants it to be considered. Since the first
bid, Ruia-controlled trust’s stake in Numetal has been sold to JSW to make the Numetal
consortium eligible for the bid. The Numetal consortium has increased its bid to 37,000 crore
as against its earlier bid of 19,000 crore, putting it ahead of Arcelor, which now wants the
NCLT to consider the first round of bids only.

While creditors will meet to decide the eligibility of both the bidders, the deadline for
resolution has been extended for a month. “As there is maximisation of value for all
stakeholders, I don’t see why there is such a fuss being made on revised bids. You have to
understand that bankruptcy is complex and the idea is to find the best possible resolution,”
says an advisor of a company that has been allowed to rebid.

Seshagiri Rao Joint MD and group CFO, JSW SteelThe highest bid always wins rather than
the turnaround strategy and the amount of equity that the new investors will bring in-
Seshagiri RaoJoint MD and group CFO, JSW SteelIn both the cases of Binani Cement and
Essar Steel, bidding matches for assets have resulted in better realisation for the creditors and
that is a welcome sign. In the case of Binani Cement, the lenders are likely to walk with the
recovery of almost all their dues thanks to UltraTech’s relentless pursuit. And, in the case of
Essar Steel and its associated cases, the banks are looking at a recovery of at least 39,000
crore and that is no small change to begin with despite the many contentious twists in both
cases.

Bring on the professionals:-

Meanwhile, resolution professionals are emerging as a new breed even though the firms they
belong to cannot be part of the process right now. Their gamut of responsibilities include
management of the company, facilitating the formation of the CoC, validating the claims of
various operational creditors, conducting forensic audits to cull out related party transactions
and evaluating the resolution plans under the IBC till the company can find a successful
bidder approved by the NCLT. While these individuals have the backing of the big four
consulting firms who form the back-office for the resolution process, finding a resolution
with the 270-day timeframe is proving to be a tough task.

However, the NCLT has, in more than one instance, overruled the decision of the resolution
professionals. In the case of Bhushan Power & Steel, Tata Steel had emerged as the highest
bidder. But UK-based Liberty House, which also made a bid for the company after the
deadline, questioned the CoC decision to reject its bid. Its appeal is on the ground that the
resolution professional had accepted both ArcelorMittal’s and its own application for
expression of interest after the expiry of the deadline, which meant it wasn’t sacrosanct.
Liberty had submitted an initial expression of interest and sought additional time, submitting
its bid on February 20, post the February 8 deadline.

Eshwar Karra CEO, Phoenix ARCWe will be creating a new graveyard for sick companies in
India, and that was definitely not the objective of the IBC- Eshwar KarraCEO, Phoenix
ARCThe NCLT then ruled that the bid couldn’t be rejected based on a deadline fixed by the
resolution professional and ordered the creditors to evaluate Liberty’s bid as well. Currently,
Liberty’s bid at 18,500 crore is the highest, trumping Tata Steel’s offer of 17,000 crore and
JSW’s offer at 11,000 crore. At the bankruptcy court, Tata Steel’s appeal says that Liberty
House was nothing but a proxy for the debtor, and their only objective was to derail the
resolution process.

Despite its setback in the case of Bhushan Power & Steel, Tata Steel managed to win the bid
to buy out the stressed assets of Bhushan Steel, outbidding JSW Steel’s 28,000 crore offer.
“We put in a very competitive bid,” says Seshagiri Rao, joint managing director and group
chief financial officer of JSW Steel, “but their bid was far more aggressive. They have iron
mines in Odisha, where the ore needs to be taken out before its license expiry in 2030, thus,
they might be able to derive better synergies by having an additional asset there.”

L&T, one of Bhushan Steel’s creditors, however, has objected to Tata Steel’s resolution plan,
where it had suggested that operational creditors would get 200 crore and then an additional
1,000 crore on a preferential basis. JSW Steel owes L&T 900 crore and is demanding that it
be deemed as a secured creditor. In the waterfall repayment plan under the IBC, operational
creditors rank below financial creditors and haven’t seen good pay-offs so far (see: The
waterfall effect). This has led to several litigation being filed by the operational creditors. The
good news is that operational creditors can now take errant companies who refuse to clear
dues on time like in the case of Reliance Communications where Ericsson’s insolvency plea
against the former has been allowed by the NCLT in a bid to recover its unpaid dues of 1,155
crore.

That apart, there are questions about whether the approach of picking the highest bidder in
itself is appropriate. “I feel the process gives a lot more weightage to upfront payments for
secured creditors or operating creditors. Thus, the highest bid always wins rather than the
turnaround strategy suggested in the resolution plan and the amount of equity that the new
investors will bring in. To the secured creditors, the synergies that a new investor brings are
not of relevance,” says Rao. Bankers, he says, look for faster resolutions and smaller haircuts
on their loans. JSW had bid for three out of the five steel plants up for sale, and its sole bid on
Monnet Ispat & Energy along with private equity fund AION was accepted by the creditors
and cleared by the Competition Commission of India but the NCLT is yet to give its approval
and has sought a written resolution plan from JSW. There has been criticism around the deal,
with people saying it gives a back door entry to Monnet’s existing promoter, Sandeep Jajodia,
since Sajjan Jindal’s sister is married to him.

Plugging the holes:-

Errant Indian promoters are known to find and make the most of loopholes in the law. Till the
Section 29A amendment came into force, promoters who ran their companies to the ground
were able to buy back their own company at 30% or lower, forcing banks to take a huge cut
on their loans. The idea of the amendment was to make it harder for owners to regain control
of businesses without first settling their dues. While the move has managed to keep some
larger defaulters at bay, it is posing a huge problem in the cases of smaller and medium
enterprises where there are mostly no bidders. Also, given the legal tangles these cases are
attracting and the haircuts (in some cases more than 80%), it is tempting for banks to let them
go to liquidation instead of answering queries from the NCLT. “We will be creating a new
graveyard for sick companies in India and that was not the objective of the IBC,” says
Eshwar Karra, CEO, Phoenix ARC, which manages nearly a $1-billion worth of stressed
assets. In most of the smaller companies, it is only the promoters who are interested in
reviving the company. “If the company gets into trouble due to cyclic downturns in the
business, it is not fair to penalise the promoter. In fact, a lot of them borrow loans at a higher
cost to fund working capital and get into the debt trap. If the business is viable and has a good
promoter at the helm, banks can work with asset reconstruction companies to revive the
operations,” says Sridhar Ramachandran, chief investment officer at IndiaNivesh
Renaissance Fund, which specialises in helping small and mid-cap companies turnaround
operations.

SBI’s Kumar concurs, saying that the NCLT should be the last resort for SMEs. “It is best for
the SMEs and the lenders to find a resolution within the stipulated time. You can have one-
time settlements or enter into an agreement with ARCs for the sale of assets. RBI has given a
lot of flexibility in finding an option,” he says. While some bankers argue that the 180-day
time frame is not enough, Kumar says, “If the stipulated time is one year, then they will say
18 months is better. There is never enough time. Not all cases under bankruptcy are complex
and you can always get an extension if it is.” Like Kumar, many feel putting a timeframe
pushes both parties to find a resolution since both the borrowers and the lenders don’t want to
go for liquidation. In case of companies such as Alok Industries, where the sole bid from
Reliance Industries was rejected by the creditors, the company going into liquidation will see
18,000 people lose their livelihood. “Companies and banks are barely getting their heads
around resolution. Liquidation will open a whole can of worms. Handling workmen
displacement can be very tricky let alone winding up the company and selling the assets to
different boxes. It is a Pandora’s box waiting to be opened,” says Shardul Shroff, chairman,
Shardul Amarchand Mangaldas & Co.

Indian banks traditionally have a bad track record of recovering assets. For the past four
years, PSUs could recover a little more than 10% of the bad loans written off. That came to a
measly 29,343 crore of the 2.72 lakh crore worth of bad loans. “Banks have been trying their
best to improve their recovery rates but the power of lenders has been very limited until now.
Even site visits for prospective buyers were challenging. You couldn’t force promoters to
undertake the sale of assets to repay their loans,” says Diwan.

The IBC is hoping to change all that. “The intent of the IBC is well-founded. As a country,
we haven’t been very successful in resolving NPAs and hopefully this will change with the
implementation of the code,” says Karra. For the IBC to emerge as a powerful tool for
bankers, ground rules have to be clear and stringent in terms of meeting deadlines and
following processes. “While in large cases, a standard solution may not work, it is important
for the NCLT to set a precedent and follow it instead of letting every stakeholder file
litigation cases against resolution professionals or creditors, and more importantly, not get
bullied by large corporates to twist cases in their favour. Value maximisation should be a
priority, but, at the same time, it shouldn’t make a mockery of the code,” says a lawyer
representing PSU banks.

Shardul Shroff Executive chairman, Shardul Amarchand Mangaldas & CoCompanies and
banks are barely getting their heads around resolution. Liquidation will open a whole can of
worms- Shardul ShroffExecutive chairman, Shardul Amarchand Mangaldas & CoThe delay
in the first few cases under the NCLT is a cause for concern but chinks are being ironed out.
It is paramount for the IBC to not only penalise delaying tactics and deals within deals, but
also establish a process that offers some predictability in resolution instead of fuelling the
existing chaos. The code has, without any doubt, been established for bankers to realise
maximum value. However, if there is no sanctity attached to the timeline or the process of
these bids, constant rebids allow potential buyers to sit on the fence and assess what the bids
are like and then jump in unfairly. Even worse, it allows promoters to collude with other
interested parties to come up with frivolous bids to delay the process. “In cases where
creditors foresee active bidding, an open auction could be a more transparent way to realise
maximum value like they did in the case of telecom spectrum auctions,” says Shroff. Multiple
avenues can be explored, but for the code to have some bite and be taken seriously, there is a
definite need to set a strong precedent in these initial cases. “While the NCLT has been quite
effective in terms of process and hearings, a lot of time that should be spent on resolution is
being spent on qualification and eligibility issues of bidders. There must be a lot more focus
on bringing down these challenges,” says Shroff. “The answer lies in offering better terms of
bidding and bringing a screening aspect for eligibility other than Section 29A.” So, another
amendment is in the works that allows genuine promoters of SMEs to participate in the
bidding process. A list of offences that will keep promoters permanently off the list is being
mulled over rather than a blanket ban. Apart from lowering the voting majority from 75% to
66% for critical decisions that will bring in faster resolutions, there is also a plan to allow
financial institutions such as NBFCs and private equity funds to participate in the process,
bringing them on par with banks. Even if the recovery rates then drop from the expected 57%
for the first two lists of large companies to about 30-40%, it is still better than the current rate
of recovery. Just the threat of being yanked to the bankruptcy code should result in better
recovery for Indian banks. In countries such as China and Brazil, where bankruptcy laws
were introduced in 2005 and 2007 respectively, recovery rates have increased considerably
from 18.80% to 33.4% in China and 12.6% to 26.3% in Brazil, and there is no reason why
India should not follow suit.

“In due course IBC will become the most water-tight code with every clause being tested. In
every country where bankruptcy laws were introduced, it has taken time to stabilise. In India,
the process will be faster with precedents being set in some of the large complex cases. We
just have to give it some time,” says Antony.
Indian banks are looking towards a better FY19 as few of the initial cases among the dirty
dozen should get resolved by June 2018 quarter. With the successful resolution of Binani
Cement, the Finance Ministry is looking to recover nearly 100,000 crore from the rest of the
11 cases on its first list. That is a good first step.

Bhushan Power insolvency: NCLT to conclude BPSL hearing by April 15

By: FE Bureau | Published: April 13, 2019 2:46:39 AM

The tribunal is expected to reserve its order on April 15 after hearing the counsel of JSW
Steel –– the highest bidder for BPSL –– and is expected to ask all parties to submit a note if
they want to provide any further information.

“We want to conclude hearing on the BPSL matter on Monday. There will be no further
argument beyond Monday,” NCLT’s principal bench, headed by president justice MM
Kumar, said on Friday.

The National Company Law Tribunal (NCLT) will conclude hearing on Bhushan Power and
Steel (BPSL) insolvency case by April 15. Insolvency resolution process for the company
was admitted by the principal bench of the NCLT on July 26, 2017 on a plea of Punjab
National Bank.

“We want to conclude hearing on the BPSL matter on Monday. There will be no further
argument beyond Monday,” NCLT’s principal bench, headed by president justice MM
Kumar, said on Friday.

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to this much today

The tribunal is expected to reserve its order on April 15 after hearing the counsel of JSW
Steel, the highest bidder for BPSL, and is expected to ask all parties to submit a two-page
note if they want to provide any further information. It has been more than 600 days since
BPSL was admitted by the NCLT. The Insolvency and Bankruptcy Code permits a maximum
of 270 days for the resolution of a company admitted by the insolvency court.

JSW Steel has offered to pay Rs 19,350 crore to the financial creditors of the debt-ridden
BPSL, implying a near 60% haircut for lenders. Apart from this, the Sajan-Jindal promoted
company has offered to pay operational creditors a sum of Rs 350 crore against their admitted
claims of Rs 733 crore. Tata Steel’s total bid is for an amount of Rs 17,000 crore.

Read | TCS Q4 results: Profit rises 17% on year to Rs 8,126 crore; key figures

A clutch of 34 financial creditors have claimed Rs 47,303 crore from the company as on
January 3, 2019, of which, the resolution professional (RP) has admitted claims worth Rs
47,150 crore. Operational creditors, numbering 1,778, have claimed Rs 2,320 crore from
BPSL though the admitted amount is Rs 733 crore.
BPSL’s 3.1 million tonne per annum (mtpa) steel making capacity will catapult JSW Steel as
India’s largest steel company, outpacing Tata Steel, with a capacity of over 22 mtpa.

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 Auditor’s report

 Report on financial statements:-

The accompanying standalone Ind AS financial statement of Bhushan power and steel limited
which comprises the balance sheet as at March 31, 2017, the statement of profit and loss.
Cash flow statement and statement of change the equity, for the year then ended and a
summary of significant accounting policies and other exploratory information.

 Management responsibility for the financial statements:-

The company’s board of directors is responsible for the matters stated 134(5) of the
companies act. Financial performance including other comprehensive income, cash flow and
changes in equity of the company in accordance with the accounting principles generally
accepted in India.

The responsibility also include the maintenance of adequate accounting record in accordance
with the provisions of the act for safeguard of the assets of the company and for preventing
and detecting frauds and other irregularities.

 Auditor’s responsibility:-
An audit involves performing procedures to obtain audit evidence about the amount and the
disclosures in the standalone Ind AS financial statements. An audit also includes evaluating
the appropriateness of the accounting policies used and the reasonableness of the accounting
estimates made by company’s directors, as well as evaluating the overall presentation of the
standalone Ind AS financial statements.

 Qualified opinion:-
The aforesaid standalone Ind AS financial statements give information required by the act in
the manner so required and give a true and fair view in conformity with the accounting
principles generally accepted in India.

 Report on other legal and regulatory requirements:-

According to the information and explanation given to us, no undisputed dues were in arrears
as at 31st March 2017 for a period of more than six months from the date they become
payable.
Based on our audit procedure and according to the information and explanation given to us,
the company has defaulted in repayment of loans/borrowings to the financial institution bank,
government as per details given here-under
According to the information and explanation given to us and based on our examination of
the records of the company, the company has not made any preferential allotment or private
placement of shares or fully or partially convertible debentures during the year.

The company has not entered into non cash transactions with directors and persons connected
with him.
Some of the financial risks:-
1. Credit risk
2. Liquidity risk
3. Market risk
4. Interest rate risk
 IBC Proceedings
Bhushan Power was one of the 12 large corporate accounts shortlisted by the Reserve Bank
of India in June 2017 for insolvency proceedings. It was one of firms in Reserve Bank of
India’s “dirty dozen" list of NPA accounts referred to the bankruptcy courts under the
Insolvency and Bankruptcy Code (IBC). BPSL operates a 3.5 million tonne (mt) steel plant in
Odisha. Under its earlier promoter Sanjay Singhal, the company had accumulated debt of
more than ₹47,000 crore, of which the principal outstanding to banks was ₹42,100 crore.
Following this, lenders led by Punjab National Bank filed for the proceedings. The case,
however, has seen considerable delays ever since.

In February 2018, Liberty House approached the appellate tribunal to submit a bid for
Bhushan Power & Steel, even though the deadline for submission had already passed. After a
prolonged hearing, the NCLAT allowed Liberty House to participate in the bidding process,
in the interest of maximizing returns for creditors.

By October 2018, the Committee of Creditor (CoC) had decided to back JSW Steel as the
highest bidder in the case, owing to the higher offer. Bhushan Power’s promoter, however,
had already approached the Supreme Court challenging the constitutional validity of the IBC.
Singhal had claimed that the IBC did not allow promoters to bid for their own assets and was
therefore against their fundamental rights. The apex court had dismissed this argument,
upholding all the provisions of the code.

On January 2019, the Ahmedabad bench of the National Company Law Tribunal said the
promoters did not have any fundamental right to settle their dues and that such a plan can
only be entertained with the approval of the lenders.

The promoter of Bhushan Power & Steel Ltd. made a last effort to settle more than Rs
47,000-crore dues to financial creditors under Section 12A of the Insolvency & Bankruptcy
Code. Sanjay Singhal offered to convert the entire debt of Bhushan Power & Steel into
cumulative redeemable preference shares, which will allow for repayment over 17 years,
according to a letter addressed to the committee of creditors.

The offer comes at the final stage of resolution for the beleaguered steelmaker under IBC,
where the National Company Law Appellate Tribunal is to decide on the winning bidder.
JSW Steel Ltd., Liberty House U.K. and Tata Steel Ltd. submitted their final bids in the case.
JSW Steel, with its Rs 19,700 crore bid, narrowly outbid Liberty House’s Rs 19,000-crore
offer. Tata Steel offered to repay Rs 17,000 crore to financial creditors. The Section 12A of
the IBC allows creditors of Bhushan Power & Steel to withdraw insolvency proceedings if 90
percent of the CoC is in favour of settling dues. In its judgment in January 2019, the Supreme
Court upheld the constitutional validity of the IBC, specifically saying the right to withdraw
from the IBC remains with the entity that had filed for insolvency proceedings at the
beginning.
Resolution Process:
The National Company Law Tribunal (NCLT) has approved the JSW Steel’s ₹19,700-crore
bid for debt-ridden Bhushan Power & Steel Ltd (BPSL) and assured that the slew of criminal
proceedings against BPSL promoters will not affect the company in future.

While clearing the bid, the two-member principal bench of the NCLT headed by President
Justices MM Kumar and SK Mohapatra said that the criminal cases against the promoters of
BPSL for siphoning off the funds from the company will not to impact JSW Steel as its new
promoter. NCLT also said the profit made by BPSL during the insolvency period will be
distributed between creditors of Bhushan Power, in accordance with the ruling by the
National Company Law Appellate Tribunal in the ArcelorMittal case.

The cases in which the adjudicating authority or the appellate authority could not decide the
claim on merit, the applicant can raise the issue before appropriate forum in terms of Section
60(6) of the Code, the judgment said. It also rejected plea for various relief sought by JSW
Steel in the resolution plan from the statutory authorities under Income Tax Act, Ministry of
Corporate Affairs, Department of Registration and Stamps and RBI and directed to file
separate application before the concerned authorities.

BPSL will add 3.5 million tonnes to the annual capacity of JSW Steel. The company received
Letter of Intent from the Insolvency Resolution Professional in February. Initially, JSW Steel
had placed a bid of ₹9,500 crore for the Bhushan Power asset by revised it to ₹19,700 crore
and that offer was approved by the CoC with 97 per cent vote.

Bankers present at the 13-hour-long meeting of the committee of creditors (CoC) held on
August 14,2019 said JSW Steel’s bid was higher by Rs 2,700 crore than that of Tata Steel
and better by Rs 850 crore compared with the UK-based Liberty House’s cumulative offer of
Rs 18,850 crore. Bhushan Power and Steel owed lenders, led by Punjab National Bank, Rs
47,000 crore.

The bankers said Tata Steel did not revise its original offer of Rs 16,500 crore for financial
creditors though it committed to pay operational creditors Rs 500 crore. Liberty House’s
proposal to pay Rs 18,500 crore to the financial creditors, sources said, was exclusive of the
commitment to pay Rs 350 crore to the operational creditors.

As per the Insolvency and Bankruptcy Code (IBC) rules, 66% of the lenders need to approve
a resolution plan for it to go through. Thereafter, the resolution professional (RP) needs to
submit the approved plan to the National Company Law Tribunal (NCLT) for its approval
before it takes effect. However, in the Bhushan Power and Steel matter, lenders were asked
by the appellate tribunal on August 1 to decide on the most appropriate resolution plan taking
into consideration their feasibility. They were also directed to leave the decision in a sealed
cover until the National Company Law Appellate Tribunal (NCLAT) passes an order on
whether the late bid submitted by Liberty House initially is valid or not.
Banking sources said the CoC will on August 17 submit all three received bids to the NCLAT
for its direction before proceeding further. The Supreme Court had on August 10 directed the
NCLAT to “hear and pass final order as expeditiously as possible” and also asked the lawyers
not to seek any adjournment on August 17, the day the appellate tribunal is slated to hear the
case. JSW Steel’s offer to pay out 41% of dues to Bhushan Power’s lenders is the second best
offer by any acquirer firm so far after the initiation of the IBC-led insolvency process.

JSW Steel has also offered an upfront cash payment of ₹19,700 crore to Bhushan Power’s
lenders, besides infusing ₹350 crore into the steelmaker to revive it. JSW Steel had also
approached the NCLT seeking protection from litigation, considering that a forensic audit of
the company’s finances had revealed potential fraud and siphoning off of money by its
erstwhile promoters. The allegations are being investigated by the Central Bureau of
Investigation. JSW Steel had also asked the court for relief from statutory dues under the
Income Tax Act, Department of Registration and Stamps, Ministry of Corporate Affairs and
RBI, among others.

In its judgment, the NCLT said: “We do not feel persuaded to accept the prayer made in the
resolution plan, yet the resolution applicant may file appropriate actions before the competent
(statutory) authorities." JSW also sought clarity on the distribution of profits earned by the
company during the two-year long resolution period, and whether this accrues to JSW Steel
or will be distributed among creditors.

In July 2019, M.V.S. Seshagiri Rao, joint managing director and Group chief financial
officer, JSW Steel, said it would request the NCLT for a “clean company". “We also need to
look at the rights of resolution applicants. In many cases, there is a lot of litigation coming in
after control has changed hands. There is a disturbing judgment from the Delhi high court
which says that the Prevention of Money Laundering Act gets precedence over the IBC. In
Bhushan Power, we approached the NCLT for protection that the assets after change in
control will not be accessed through any litigation. We have to see if NCLT will give that
relief or not."

Through its nearly 800-day long resolution process, the case has seen several twists and turns.
At the time of submission of bids, the potential ownership of the BPSL assets had been hotly
contested between Tata Steel, India’s largest steel manufacturer, and its fierce rival, JSW
Steel. UK-based Liberty House had thrown its hat in the ring as well, but JSW Steel upped its
bid at the last minute to beat both of them. The resolution process itself meandered along
even as there were successive changes made to the IBC, altering how the resolution amount
shall be paid to different classes of creditors. Finally, earlier this year, the details of the CBI
investigation in the Singhal family, that owned BPSL. NCLT said in its judgement that the
criminal proceedings initiated against the previous board members shall continue even after
the company has changed hands.
REFERENCES

https://www.bhushanpowersteel.com/

PROWESS (Data extracted on 6th of September, evening)

https://www.bloomberg.com/asia

https://timesofindia.indiatimes.com/defaultinterstitial.cms

https://economictimes.indiatimes.com/configspace/etmain_static/content/defaultinterstitial.ht
ml

https://www.rbi.org.in/

https://www.moneycontrol.com/news/business/companies/cdr-nod-key-to-dealingbhushan-
loan-andhra-bank-1139313.html