New Delhi: The resolution of yet another mega corporate loan defaulter, Bhushan Power & Steel Ltd (BPSL), is in doldrums and it is entirely possible that the panoply of lenders, which was hopeful of getting back at least a part of their money sunk in this steel maker, may remain empty handed. BPSL is one of the dirty dozen, a list of 12 large corporate defaulters which had earlier been identified for quick resolution by the government under the Corporate Insolvency and Resolution Process (CIRP); it owed lenders about Rs 47,000 crore.
But neither has the CIRP process been as successful as the government may have liked, nor is this particular case getting resolved anytime soon. Only three of the dirty dozen defaulting companies have been sold till date, others have either been liquidated or continue to await resolution. As for BPSL, fresh allegations of borrowing fraud by two of the lenders, leveled earlier this month, are almost certainly going to hamper resolution.
BPSL was referred to the National Company Law Tribunal (NCLT) under CIRP in July 2017. It is a fully integrated steel-making company that manufactures flat and long products and owns plants at Chandigarh, Kolkata and Odisha in India. The latest twist in the tale of BPSL resolution came when two state-owned banks (lenders) declared one after the other that there had been borrowing fraud by BPSL. These declarations come when, after several bumps, the resolution of BPSL was nearing the end and JSW Steel had already received a letter of intent from BPSL’s lenders to acquire the company by paying about Rs 20,000 crore.
As per revelations made by Punjab National Bank and Allahabad Bank, BPSL defrauded a total amount of about Rs 5,000 crore. Both PNB and Allahabad Bank said in separate stock exchange filings that BPSL has misappropriated bank funds and manipulated books of accounts to raise funds from the consortium of lender banks.
Both the accusing banks appear to be victims of fraudulent practices by BPSL but it is instructive to note that PNB is no stranger to large-scale frauds. This bank reported the largest amount involved in fraud among all public sector banks in the NDA government’s first term. As per this reply in Lok Sabha by MoS Finance Anurag Thakur, PNB reported Rs 14,734.52 crore involved in frauds in a single year — 2016-17 — by far the largest amount among all PSBs. It is not clear whether BPSL was part of the disclosures made by PNB in that year.
Anyhow, these allegations of fraud by lenders, two years after the CIRP process began, raise many questions on what the approach of banks has been to recover large amounts lent to dubious companies. Why did it take these two PSBs such a long time to conduct a forensic audit and reveal fraud? People close to developments say more banks could make similar revelations about BPSL and fraudulent practices going forward.
A source close to developments pointed out that even after these fraud allegations have emerged from lenders, the resolution process under CIRP can continue as long as the bidder wants to continue with the process. But this person wondered why, when the resolution process had been going on for almost two years, did banks remain quiet till now? “The fraud allegations emerging now could cloud the bidder’s decision and the valuation of the asset could go down,” he said.
Now let us come to the bidder selected by lenders: JSW Steel. Since a significant amount lent to BPSL by state-owned banks has come under a cloud, will JSW Steel remain in the race? A second source said though JSW Steel has assured a court it remains in contention for BPSL, it retains the option to withdraw from the process entirely. This is not an unknown occurrence — three cases before NCLT have seen bidders withdraw for various reasons despite the resolution process nearing the end. And the indebted companies in each case have then had to be liquidated. A second option before JSW Steel could be lowering its bid significantly.
In either scenario, the resolution process for BPSL would be in jeopardy. The second source said there is growing uncertainty about the future of such an acquisition, since an ongoing probe by various investigating agencies could hamper operations and financials of BPSL even after it was acquired by JSW. This is a prospect no acquirer wants to live with.
A third person said some wrongdoings have also been found in Bhushan Steel Ltd (BSL). Like BPSL, BSL was also a part of the dirty dozen. JSW Steel was in contention for both to begin with under CIRP, but BSL was bagged by Tata Steel. Tata Steel was a contender for BPSL too but lost out to JSW Steel when the latter raised its bid to the current amount. The first person quoted above said it is possible that Tatas may enter the race for BPSL again in case JSW Steel were to withdraw.
The second source said JSW has now sought the forensic audit report from the Resolution Professional associated with BPSL and will take a decision on further course of action after reviewing this report.
In 2017, the Reserve Bank of India had shortlisted 12 such large corporate accounts for immediate bankruptcy proceedings, since these corporate debtors together owed the banks a whopping Rs 3.45 lakh crore. As per the last newsletter of the Insolvency and Bankruptcy Board of India (IBBI), only Rs 52,519 crore of this amount owed to banks has been recovered till now. Among these 12 biggest defaulters, the resolution of BSL yielded the highest realisation at 63.5% to its creditors. The biggest haircut was taken by lenders to Alok Industries, since they could not recover even a fifth of their loans, getting only 17.11% of their dues. In the case of Monnet Ispat & Energy, only a fourth of the outstanding has been recovered.
(The author is a senior journalist. Views expressed are personal)
Source: News18