There is a new twist to the drama around the Sterling Biotech group whose promoters, while absconding from India, have offered a ‘settlement’ deal to a bunch of lenders, mainly public sector banks (PSBs) and institutions.
Acting through an ‘authorised representative’, the shady promoters, who are being investigated by almost every investigation agency in the country, offered to bring in 10% of the one-time settlement (OTS) amount, while the remaining 90% would be paid by a bunch of investors who they will identify from their hiding place overseas. The payments will be made over a period of six months.
It may be recalled that the Sandesaras had offered to repay Rs3,400 crore, which barely covered the principal, as against an outstanding loan of over Rs7,500 crore, amounting to a 55% haircut on what they owe banks. This particular deal, sources tell me, pertains to Sterling Biotech Ltd. The other major defaulter Sterling SEZ Ltd, and other group companies, owe PSBs over Rs15,600 crore.
My sources say that the latest twist to the settlement offer was discussed at a joint meeting of lenders a few days ago – probably on 20th November.
The entire promoter group—comprising Nitin, Chetak and Dipti Sandesara and Hitesh Patel—is absconding from India and is understood to be holed up in Nigeria, where it has a thriving business. In contrast to the Vijay Mallya case, there does not seem to be any concerted effort to bring this bunch of promoters back to India.
If accepted, their offer makes a complete mockery of the bankruptcy process because the shady group is trying to extract even more concessions.
It may be recalled that the National Company Law Appellate Tribunal (NCLAT) had allowed the promoters’ offer to pay up while absconding from the country and, despite the many criminal charges they face (including money laundering). But the NCLAT order (of 18 November 2019) also stipulated that the entire payment be made within 30 days or the company will go into liquidation. The defaulter group finds this condition restrictive.
The politically powerful corporate group, with links across the political spectrum, is pushing banks to buy more time for them to pay up. They want banks to file an appeal before the Supreme Court against the 18 November 2019 order (which is already very generous to them and raises questions about the bankruptcy process), asking for six months to complete the payment.
That such a suggestion from a failed group, with absconding promoters, is even discussed at the lenders’ meeting shows how big defaulters, especially those with political connections, game the judicial system and continue to call the shots.
Some lenders did suggest that the Sandesaras must be asked to prove their bona fides by depositing the money in an escrow account. It remains to be seen whether this is accepted. These lenders are to meet again in December to work out details of the appeal to the Supreme Court.
Remember, while banks are completely in cahoots with the defaulter to buy time, this group has had plenty of time to put together the funds ever since it first made the outrageous settlement offer sometime in March this year or earlier. That is when Andhra Bank scurried to withdraw proceedings from the NCLT (National Company Law Tribunal), with concurrence from other lenders, including Allahabad Bank, Bank of India, State Bank of India and United Commercial Bank.
The lenders to Sterling Biotech are all in favour of grabbing this money, no matter what the source. After all, it covers up their own questionable lending decisions. In their previous surreptitious move, they were scampering to have board permissions in place by the end of the year and to complete the OTS by 30th June.
We learn that some of the lenders are already helping the shady group by wanting time for completion of settlement to be dragged to the end of the financial year, that is, 31 March 2020, for completion of all processes.
One would have thought that banks would be counting their blessings that NCALT overturned an order of the NCLT, asking the Sterling group companies to be liquidated. But that is not the case.
Moneylife had earlier written how some money was already remitted by this group and has been accepted by the lenders, while they fought to accept the deal. It will, indeed, be an irony if the Supreme Court of India hears a plea to demand more time and a part payment from wilful defaulters who have lookout notices against them and are not being forced to return to India to face the music.
The objections of the investigation agencies to the OTS have been brushed aside; but, interestingly, financial regulators seem to be supporting the settlement process which appears to be dictated by legal representatives of the defaulter group.
The curious case of the Gujarat-based Sterling Biotech group also raises questions about why Vijay Mallya is being treated differently and his offer to pay up his outstanding with interest has not been accepted.
By way of background, on 26th April, NCLT had withdrawn its earlier order allowing the lenders of Sterling SEZ to withdraw the bankruptcy petition. It also directed government to take punitive action against senior officials of the lenders for misleading the Tribunal with a withdrawal plea.
The enforcement directorate (ED) had strongly opposed the banks’ move to allow the promoters to get away with a settlement. It remains to be seen how this case plays out because this move has direct bearing on hundreds of other cases.
Today the Lok Sabha was informed that the Ministry of Corporate Affairs has finished conducting an inspection of DHFL and has submitted the inspection report to the Finance Ministry. As per the submitted report, DHFL has a total loan portfolio of Rs 95,615 crore.
In a statement, the Finance Ministry said that the Regional Director (Western Region) has conducted an inspection of DHFL and submitted the inspection report to the Ministry on 24.10.2019. As per the inspection report, the company has taken several loans as on 31.03.2019.
The embattled housing finance company has a total loan portfolio of Rs 95,615 crore which includes housing loans of Rs 44,851 crore, non-housing at Rs 13,590 crore, SME loans Rs 4,924 crore under the retail loans. Under the wholesale loans, housing of residential projects at Rs 15,655 crore, SRA project, 7,021 crore, non-housing at Rs 9,340 crore and commercial at Rs 233 crore.
The Finance Ministry had ordered an investigation of DHFL and 5 other companies namely Immediate Real Estate Pvt. Limited, Tenacity Real Estate Pvt. Limited, RKW Developers Pvt. Limited, Darshan Developers Pvt. Limited and RajenSkycrapersPvt Limited to be led by SFIO (Serious Fraud Investigation Office) through an order on November 6, 2019.
However, the inspection report submitted by the Regional Director (Western Region) has not delved into the involvement of banks and officials.
Last week, the RBI (Reserve Bank of India) had superseded the board and there were reports that they want to refer DHFL to National Company Law Tribunal under the Insolvency and Bankruptcy Code. An administrator has been appointed to take stock of assets and liabilities. A resolution plan will be accepted only if 66% of the CoC (Committee of Creditors) approve it. There has been a freeze on payment to creditors already.
DHFL has been facing a liquidity crisis since September 2018 and has so far paid Rs 41,000 crore of its financial obligations through a securitisation of assets and repayment collections.
DHFL had stopped paying all creditors after the Bombay High Court order on 10th October put a stay on payments. The company had earlier stopped accepting public deposits and renewals of existing deposits and pre-mature withdrawals of existing deposits on 21st May.
As of July 2019, the home financier owed Rs 83,873 crore to banks, the National Housing Board, mutual funds and bondholders, including retail bondholders. Of this, secured debt is Rs 74,054 crore and Rs 9,818 crore is unsecured.
DHFL had earlier said it was working on a debt resolution plan with lenders to protect the interests of its stakeholders.
In August, the DHFL board approved a proposal to convert its debt into equity, which would have given banks control of the mortgage lender that has been struggling to meet its payment obligations.
The beleaguered pureplay mortgage lender had sought Rs 15,000 crore fund support from creditors to start giving loans to viable projects while their lenders finalise the resolution plan. The plan could also include picking up 51 percent equity in the company by converting their debt into equity.
As per other media reports, nearly nine-tenths of DHFL’s borrowing of approximately Rs 84,000 crore is secured against assets. But secured bondholders, including mutual funds, are uncertain if the embattled mortgage lender has double-dipped into what was pledged to them as security.
In October 2019, the Registrar of Companies' (RoC) regional office in Mumbai had recommended action by the Serious Fraud Investigation Office (SFIO) against DHFL in its report to the ministry of corporate affairs (MCA).
It is now likely that mutual fund houses will look to put pressure on promoters of DHFL following a forensic audit of the housing financier's books. They will also look to raise the issue in the three-member advisory committee formed by the Reserve Bank of India (RBI) to help the administrator. NS Venkatesh, chief executive of the Association of Mutual Funds in India (AMFI) is a member of the committee.
Banks have an exposure of Rs 38000 crore in DHFL. It is being reported that audit firm KPMG’s final forensic report is expected any time and banks will make 100 percent provisioning for DHFL--if the account is termed as a “fraud” account by the RBI.
Sources in the banking industry are reporting that lenders to DHFL are looking to make NPA provisions worth Rs 6,300 crore for their exposure in the Mumbai headquartered crippled home financier in this current quarter. State Bank of India and Union Bank of India had made provisions for their DHFL accounts in the second quarter.
Foraying into the mutual fund space, Muthoot Finance Ltd said on Friday that it has entered into a definitive agreement to acquire IDBI Asset Management Ltd (IDBI AMC) and IDBI MF Trustee Company Ltd for Rs 215 crore.
Muthoot Finance said in a statement that the transaction is expected to be completed by the end of February 2020 subject to receipt of necessary regulatory approvals.
After the transactions, both IDBI AMC and IDBI MF Trustee Company will become wholly owned subsidiary companies of Muthoot Finance.
"The transaction will be completed pursuant to the share purchase agreement dated November 22, 2019 entered into by and between Muthoot Finance Limited, sellers and the target companies. Upon completion of the transaction, Muthoot Finance Ltd will purchase 100 per cent equity shares of IDBI Asset Management Ltd and IDBI MF Trustee Company Ltd held by the sellers for a total consideration of Rs 215 crore," the statement said.
The transaction is subject to receipt of approval from the regulators, including the Securities and Exchange Board of India (Sebi), it added.
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