How Much Monne Will Come From Liquidation of Monnet? Some Advice for Lenders

A report in today’s Financial express describes the situation at Monnet Ispat’s bankruptcy proceedings at National Company Law Tribunal. It tells us that

The liquidation value of the company has been pegged at Rs 2,365 crore, while the total admitted dues of the financial creditors stand at Rs 11,000 crore, and those of the operational creditors at Rs 440 crore.

Some advice to the lenders coming from none other than Benjamin Graham who wrote this in 1934.

The conception of a mortgage lien as a guaranty of protection independent of the success of the business itself is in most cases a complete fallacy. In the typical situation, the value of the pledged property is vitally dependent on the earning power of the enterprise. The bondholder usually has a lien on a railroad line, or on factory buildings and equipment, or on power plants and other utility properties, or perhaps on a bridge or hotel structure. These properties are rarely adaptable to uses other than those for which they were constructed. Hence if the enterprise proves a failure its fixed assets ordinarily suffer an appalling shrinkage in realizable value.

In other words, be very skeptical when someone tells you that the liquidation value of the assets of a bankrupt company are worth so and so. This is especially true because the valuer has zero skin in the game. If his estimate turns out to be higher than actual liquidation value, his estimate, he can’t be asked to refund the difference.

The FE report also tells us that

The resolution plan submitted by the JSW Steel-Aion Investment combine offers upfront payment of Rs 2,457 crore to the lenders, another Rs 219 crore through optionally convertible preferential shares and an additional Rs 212 crore through fresh equity of 12.5%, according to information shared by the resolution professional’s legal counsel Ravi Kadam during the hearing.

No one really knows how much monne will come from the liquidation of Monnet Ispat. But the cash component alone of JSW’s offer is higher than the liquidation value of the borrower. And then there is the potential upside from convertible preferred and common stock.

And the monne from the highest bidder will come now while who knows by when will liquidation be complete and how much monne will come from it?

Advice to lenders. I know it’s painful to accept a 75% haircut but sometimes in life all choices are bad and you have to choose the least painful one. Take the money (and the shares) from the highest bidder in the process. And forget about liquidation.

(The author is an Adjunct Professor at Management Development Institute, Gurgaon. No positions in any of the businesses cited above.)

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COMMENTS

Ashok Senniappan

5 months ago

The liquidation value of the company has been pegged at Rs 2,365 crore, while the total admitted dues of the financial creditors stand at Rs 11,000 crore, and those of the operational creditors at Rs 440 crore.Yes it is true that lenders will have to take a huge hair cut ,Take the money (and the shares) from the highest bidder in the process.
Very Very beatifully said.

Anoop Kumar Chopr

5 months ago

hi, I am Anoop chopra. I have paid monthly subscription of Rs 118/- on 29/04/2018. I am not able to open the site pl help

Debashis Basu

6 months ago

Benjamin Graham's words words were a great warning for all of us including Warren Buffett. We of course, don't or can't always learn vicariously. Buffett, the savviest of investors, decided to close down the New Bedford textile plant that was one of his earliest acquisitions. As Perter Lynch writes "the management hoped to get something out of selling the loom machinery, which had a book value of $ 866,000. But at a public auction, looms that were purchased for $ 5,000 just a few years earlier were sold for $ 26 each— below the cost of having them hauled away. What was worth $ 866,000 in book value brought in only $ 163,000 in actual cash."

REPLY

surajit som

In Reply to Debashis Basu 6 months ago

The basic principle is : It is so difficult to create asset but so easy to lose-or even destroy- it so quickly !!!

A BANERJEE

6 months ago

What this learned professor could have explained is as to what the MBAs running the company doing all these years?

REPLY

surajit som

In Reply to A BANERJEE 6 months ago

MBAs dont take vital decisions. They are taken by Owner/Promoters. MBA/CAs are paid to cook up various books and keep their mouth shut.

Ramesh Poapt

6 months ago

is this precursor of other mega deals? is it transparent and the best?
is there not anything hidden? painful haircut!

surajit som

6 months ago

I could not agree more. Let me put Ben Graham differently. A baby in a family is the centre of attention and happiness. Or at least it should be that way. But what happens when it gets orphaned (tragically it happens sometimes )? In Monnet's case- or in such cases -it would mean total dismantling or destruction of the assets. It should be avoided at all cost. The suitor may not be the most desirable. He seldom is. But he should be given a chance particularly when the lady is willing !!!! Disc: I have no holding Monnet.































































































Balakrishnan S

6 months ago

That assets are worth less than lia is a no brainier.
How lia got so big is the interesting qn.
And a proper evaluation of asset acquisition is bound to throw up a lot of skeletons as well as in other similarly placed cos.

Bonanza for realtors as Mumbai to get 3,355 hectares more for development
Finally biting the bullet, the Maharashtra government on Wednesday permitted releasing 3,355 hectares of land, falling under 'No Development Zones' or salt pans, for housing, besides a bonanza of higher FSI to realtors, and easing the 'vertical' development of the water-locked city.
 
While around 2,400 hectares, including 300 hectares to be freed from salt pans, are earmarked specifically for affordable housing for the lower-middle class and poor sections, the the floor space index across the city has been hiked for residential and commercial purposes, said BrihanMumbai Municipal Corporation (BMC) Commissioner Ajoy Mehta.
 
He was speaking along with Urban Development Department Secretary Nitin Karir at the release of the much-anticipated Development Plan 2034 for Mumbai after the approval accorded by Chief Minister Devendra Fadnavis.
 
The government has plans to construct at least one million affordable homes, augment social amenities, infrastructure, create eight million jobs even as the Mumbai population is expected to grow from the existing 12.44 millon, peak to around 12.79 million by 2021 and then stabilize at around 11.40 million by 2034, said Karir.
 
For this, the government has estimated the need for constructing at least three million new homes or a construction of around 5.50 million square metres, to cater to an average family size of 4.2, thereby increasing the per capita housing requirement from the existing 9 square metres to upto 18-20 square metres.
 
The planned social infrastructure would include gardens, theme-parks, paid parking areas, walking areas, markets, old-age homes, etc, said Mehta.
 
However, the government has not compromised on 12,859 hectares marked as "natural areas" comprising hilly tracts, slopes, mangroves, vegetation areas and eco-sensitive zones, which will be treated strictly as NDZ now, the officials indicated.
 
Also, separate provisions shall be made for the traditional existing 'gaothans' (villages and tribal hamlets within the city), 'koliwadas' (fishing colonies) to keep their identity intact while including them in the mainstream developmental activities.
 
The government has also conceded to a long-standing demand of the realtors by hiking the FSI in south Mumbai from 1.33 to 3 for residential projects and 5 for commercial ventures like hotels, business parks and complexes, educational institutions, etc.
 
In the suburbs, FSI is hiked from 2 to 2.5 for residential projects and from 2.5 to 5 for commercial ventures.
 
This would mean developers can build much higher on a given plot area by adding floors and enable the 'vertical' growth of the city, already boasting of some of the tallest buildings in the country.
 
The new DP 2034 came after a delay of nearly four years after the previous draft version released in February 2014 led to a public furore for major errors/omissions.
 
Terming it as a 'Disaster Plan' for Mumbai, the Opposition Congress has questioned that when there is an unsold stock of 525,000 flats in Mumbai, what is the guarantee that the promised new stock of one million homes would be indeed affordable.
 
In a sharp critique, Mumbai Congress President Sanjay Nirupam said the new DP-2034 is intended to help the realtors to flourish their business in the guise of "affordable housing", particularly in the suburbs where most of the NDZ lands are being opened.
 
"The government is conspiring with the corporates and developers by conveniently excluding the 1,900 acres of Mumbai Port Trust (MbPT) lands, rendering uncertain the future of over 15,000 slumdwellers on ita Mumbai is already the second-most congested city in the world with a population density of 31,700/square km, and the new DP-2034 will congest it more, adding to chaos," he said.
 
Questioning the motives to dereserve the huge NDZ tracts, Nirupam said it is a ploy to help the builders at the cost of maintaining the city's ecological balance and providing real relief to the poor masses.
 
Similarly, NGO Citizens Civic Solutions Foundation's Mitesh Prajapati has threatened to challenge the government's move to increase FSI in the city and suburbs in the courts.
 
However, several prominent realtors including Hiranandani Group's Niranjan Hiranandani, Nahar Group's Manju Yagnik, Real Estate Management Institute's Shubika Bilkha, Knight Frank India's CMD Shishir Baijal, Spenta Corporation's MD Farshid Cooper and others have welcomed the new DP-2034 provisions.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

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COMMENTS

Silloo Marker

6 months ago

The Chief Minister of Maharashtra, like some of his predecessors, is quietly selling out the city to the builders and for obvious reasons - general elections approaching in 2019.

The government will be hugely compensated for the extra FSI and other reserved lands opened up by the present Development Plan. The real estate players who will gain hugely by this windfall, will certainly give generously to the party in power, the BJP, in Maharashtra and at the Centre.

The city may go to the dogs and most certainly will, with more and more congestion, less clean air and water. It is the last nail in the coffin of a once beautiful and well-planned city. The common man's only hope is still the judiciary which may put a spanner in the works. At least, those not taken in by the tall promises of "affordable housing", do hope so.

Bharti Infratel, Indus Tower to merge, create 1.63 lakh tower
Bharti Airtel has approved to merge Indus Towers into Bharti Infratel to create the largest mobile tower entities worldwide with 1.63 lakh towers across 22 circles in India, a company statement said here on Wednesday.
 
The combined company will own 100 per cent of Indus Towers, it said.
 
Indus Towers was currently jointly owned by Bharti Infratel (42 per cent), Vodafone (42 per cent), Idea Group (11.15 per cent) and Providence (4.85 per cent).
 
The combined company, which will fully own the respective businesses of Bharti Infratel and Indus Towers, will change its name to Indus Towers Limited and will continue to be listed on the Indian Stock Exchanges.
 
"Taken together, Bharti Infratel and Indus Towers had over 163,000 towers and 367,000 tenancies as on March 31, 2018. With over Rs 253 billion ($3.8 billion) in revenues (for the financial year ended March 31, 2018).
 
"The combined company will be well placed to invest on a national basis to satisfy the future demand from all telecoms operators in India as they continue to densify their networks to support sustained data traffic growth and roll out new network technologies," the company statement said.
 
"Indus Towers currently operates in 15 telecom service areas (Circles) and Bharti Infratel's operations are focused on the remaining seven Circles. 
 
"The combination of Bharti Infratel and Indus Towers, with their highly complementary footprints, will create a pan-India tower company with the ability to offer high quality passive infrastructure services to all operators on a non-discriminatory basis, needed to support the pan-India expansion of wireless broadband services using 4G/4G+/5G technologies," it added.
 
Bharti Airtel and Vodafone will have equal rights in the combined company. They have entered into a shareholders' agreement and it is expected that the combined company's articles of association will be amended at completion to reflect some of these rights.
 
"Following completion, the Board of the combined company will comprise of 11 directors, of whom three will be appointed by each of Bharti Airtel and Vodafone, one will be appointed by KKR/Canada Pension Plan Investment Board and four (including the Chairman) will be independent. 
 
"The management team will be confirmed prior to closing," the statement clarified.
 
The transaction is subject to approvals from the relevant regulatory authorities, including from Competition Commission of India, Securities and Exchange Board of India, National Company Law Tribunal, Department of Telecommunications (FDI approval), approval from Bharti Infratel's shareholders, necessary corporate approvals from the companies involved, as well as closing conditions.
 
The transaction is expected to complete before the end of the financial year ending March 31, 2019, the statement added.
 
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

 

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COMMENTS

V.Krishnamoorthy

6 months ago

t tower business is changing hands or the owner ship ratio is changing. The individual investors are not able to get a clear idea what is the ration or final outcome of their holdings.. will any help me the out come of the proposal for an investor holding 150 Bharati infratel equity shares ?

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