State Bank of India (SBI) has approached the National Company Law Tribunal (NCLT) to admit Mumbai Metro One Pvt Ltd (MMOPL) under the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC). Mumbai Metro One is a joint venture between Reliance-Anil Dhirubhai Ambani (ADA) group company Reliance Infrastructure Ltd (RInfra) and Mumbai Metropolitan Regional Development Authority (MMRDA).
In a regulatory filing, RInfra says, "SBI has filed a petition under section 7 of IBC against MMOPL, a JV of the Company with MMRDA, operating the metro line from Versova to Ghatkopar, before the NCLT Mumbai for recovery of about Rs416.08 crore."
Canara Bank, IDBI Bank, Indian Bank, Bank of Maharashtra, IDBI Bank and India Infrastructure Finance Company (UK) are the other lenders who have given loans to MMOPL for the project.
According to a senior banker, who had earlier rejected to finance the project, the debt default is not due to inefficient operations of Mumbai Metro One. "It is due to RInfra's ability to walk out, banks' inability to say no and last but not the least, the government's forceful reduction of VGF. Hence the best thing for SBI was to do restructuring and negotiate with the government, who is also responsible, for a longer concession period since bankruptcy protection imposes huge costs in the form of head or hair cut to banks apart from CIRP cost."
Viability gap funding (VGF) means a grant to support projects that are economically justified but not financially viable.
On 27 February 2023, CARE Ratings assigned a 'D' rating (issuer not cooperating) on RInfra's long-term bank facilities worth Rs1,654.38 crore, short-term bank facilities of Rs600 crore and non-convertible debentures (NCDs) worth Rs703 crore. Brickwork Rating also classified the ratings on RInfra under issuer not cooperating.
Information obtained under the Right to Information (RTI) Act by former central information commission Shailesh Gandhi, shows that in the Mumbai Metro One project, the Maharashtra government gave Rs650 crore as 'viability gap funding', land worth about Rs600 crore and Rs132 crore as equity. Thus, the total amount given by the state government was about Rs1,382 crore, plus monopoly rights.
"Reliance Infra contributed only Rs380 crore as equity. The rest came as loans mainly from public sector banks (PSBs). Yet the equity share of Reliance Infra is 74% and 26% for the government," Mr Gandhi wrote in a Moneylife
article in October 2018. (Read: The Truth about PPP: Heads They Win, Tails We Lose
He says RInfra got the right to make and operate the Mumbai Metro One after competitive bidding. "RInfra had committed that the project cost would be Rs2,356 crore and it would be completed within 60 months. It actually took 83 months and the Company claimed that the project cost had gone up to Rs4,321 crore, an increase of 83.4%!"
In May 2013, MMRDA appointed Louis Berger, an international consultant, to evaluate the increased costs and delays claimed by Reliance Infra. "Louis Berger gave a report at the end of April 2014 stating that most of the claims for increase in project costs or fares by Reliance Infra were untenable and the government should not accept them. The report has clearly stated that most of the delays were due to Reliance Infra, and many costs had been grossly underestimated while bidding by the Company. As an example, while bidding, Reliance Infra had estimated the cost of the car depot at Rs46 crore, but claimed that it spent Rs322 crore," Mr Gandhi says.
According to the banker quoted above, RInfra had rightly claimed the lowest VGF of Rs1,200 crore but reduced it to Rs600 crore under government pressure. "We saw that even in the best of scenarios, the project's viability was suspect. Didn't RInfra know this? Obviously, it knew. But the tendency of Indian corporates had been to shift all the risk to banks and, in case of a downside, give to banks hair or head cut and get away. In this background, the advent of IBC has been epoch-making. I hope IBC's ills get fixed. It is possible, but there has to be a taskmaster in the government or the Insolvency and Bankruptcy Board of India (IBBI) to do it."
Commenting on the SBI petition before the NCLT, RInfra says, "MMOPL is seeking appropriate legal advice and will take all appropriate steps to protect its interest in the matter. The financial implication on the Company cannot be ascertained and is contingent upon the final outcome of the said proceedings and subsequent legal challenges."