Apparently, is this a hearsay or part of resolution plan. If you could show that part of disclosure, it will help all analyze the situation.
Thanks
Thatās the bit about IBC that is painfulā¦ Everything is up in the air. But we all know Vedanta has already called gone ahead with 90%+ stake
http://www.vedantaresources.com/media/232260/project_shine_circular_final_submission_updated2018.pdf
Bhushan is hitting UCs, so there would be some people who know better
The transaction will be funded through a combination of equity subscription and inter-corporate loans, of which up to Rs 9,000 crore loans has an option of conversion into equity shares of BSL.
You would agree as of date no SEBI rule has been violated and if SEBI relax the rule tomorrow Tata converts itās debt into equity day after it will be perfectly legal without any question of retrospective effect.
Also we need to double check on news story of Business Standard because in the disclosure to stock exchanges, I have not seen anything mentioning issue of convertible debt.
Electrosteel matter seems to be pending in NCLAT, we can look at it once it is finalized.
I agreeā¦ but retrospectively is difficult to digest. Canāt change the goal post in the middle of the game
In case of Jaypee Infra, it is cash flow mismatch which has caused the insolvency filing against it. Other wise the value of its 6000 odd acres of land in Noida and Greater Noida is far more of its 10,000 odd cr debts. It also has an operational expressway of 165 km that generates toll of 400 cr per annum. But the flaw in the system that I am trying to point is, that as long as the creditors get their debt repaid, they are least bothered to protect the interests of the existing shareholders. In the instance of Jaypee Infra there is enough value in its assets for meeting debts, flat buyers (who havenāt got their flats yet) and existing shareholders. But just as belatedly the honourable Supreme Court has realised that the IBC doesnāt protect the interests of the flat buyers and is looking for ways and means to protect their interests, similar change in law is warranted to provide at least some say to the existing shareholders in the resolution process. You canāt just write off the existing shareholder justifying it on the basis of āthis is the basic principle of financeā. Remember that even the guys who are on the prowl snapping up these bankrupt companies like JSW Steel, would have also been a victim of these rules a decade or two ago (the price of a Rs. 10 face value stock of Jindal Vijaynagar Steel or JVSL prior to its merger with JSW was quoting at just Rs. 2 per share due to heavy losses in the late 90ās and early 2000. It had defaulted on loans and if an IBC Act was operational then, it would have been a victim itself and not a predator on the prowl today).
Who are existing shareholders?
Existing shareholders may be promoters, financial institutes, insurance companies (letās call them institutional investors), Govt. and minority shareholders.
So you are saying creditors are not interested in the interest of promoters, institutional investors, Govt. & minority shareholders. But you will agree existing shareholders will be interested in their own interest, therefore they will try their best to not let creditors destroy their value.
This seems a perfect system to me. You assertion that Jaypee Infra has enough value even then promoters are letting creditors destroy their value is either illogical or points towards something ānot visible to eyesā been done by promoters.
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Existing shareholders have ZERO say in the resolution process from the day the NCLT accepts the insolvency petition. On that very day the board of directors are suspended and all shareholders become persona non grata.
which means if you are an existing shareholder, you make sure that your company should never be admitted to NCLT and how can you do that. By
- Not taking debt.
- If you take debt, service debt on time, every time.
Because if you take debt and not service the debt & you see creditor standing in front of you. What do you do? You run.
Default on debt can happen for several reasons beyond control of management. Take a look at the power companies. Lets take example of Rattan India Power. They have commissioned their 1350 MW power plant at Nasik since a year but unable to supply a single watt of power to MSEDCL as another power company (Wardha Power a subsidiary of KSK Energy Ventures) have challenged their PPA in court. They have got verdicts in the lower court but now matter is pending in Supreme Court since more than a year and a half. Meanwhile the Company being unable to supply a single watt under its PPA incurs losses of 1650 cr in FY 17-18 and will be taken to NCLT very soon. The market price has crashed to Rs. 4.5.
Is the management responsible for this mess? No they are not. The delayed system of administering justice in our country is going to kill this company and its shareholders. Spare a thought for its investors who applied at the IPO price of Rs. 45 in 2009.
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Well that is why equity is risky. Generally leverage (operating as well as financial) is twin edge sword. However, I believe in market, all stakeholder shall take care of there own interest. If investor trust management which take leverage to improve their upside without proper risk evaluation, the lenders can not be blame for taking that defaulting management to NCLT.
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Even if the rule of a maximum ownership of 75% by the promoters was maintained, there were many ways available with the new promoter to dilute minority shareholders. For example, issuing themselves warrants, convertible debt etc. with intermittent issuance of equity to non-promoters. When the promoters of bankrupt companies were barred from submitting resolution plans, it became clear that the rules of bankruptcy resolution have changed in India. This was the time when minority investors should sold these stocks. Now, the bargaining power has shifted in favor of lenders, as it should be.
While I am not a legal person, I think it is very possible that even if new promoter equity would be above 75% initially they should and probably would have the option to either dilute it over a period of time or very clearly they have the option to delist the stock. E.g. in many IPOs upon listing promoter equity is above 75% but they dilute it progressively through open market deals.
These are special situations that are totally uncharted waters as far as the legalese goes, so there would be some confusion on these. But on the principle of fairness & equity I would say that the minority shareholders of a bankrupt company are clearly last in the pecking order, they can expect as much as the promoter of the bankrupt company - which is not much if anything at all. Minority shareholders are legal owners even if they have no say in management, why should they be entitled to any additional favours?
Vedanta offer near zero value to existing shareholder of Electrosteel steel as per the enclosed article
While we need to see other plans, but my initial view of negligible value for existing shareholder in IBC cases appears to be true, at least for Bhushan steel and Elctrosteel Steel public information available as on date.
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Any decision/news on Amtek Auto and Liberty House. The last news I found was this case was referred to court and hearing was on 31st May.
Hi, does anyone know if the resolution plans submitted for NCLT cases are available online? I am unable to find any details on bids that have been submitted for takeover of these companies except news articles that donāt include much.
The resolution plan are not public document. They are shared with lenders. However, major points are generally covered into Newsreport and after approval by NCLT in NCLT judgement (which is in public). We also get disclosure from listed player if they are bidding like Tata Steel in Bhushan and Vedanata in Electrosteel Steel.
Having said that, we all shall be happy as we all are in same group as RBI Deputy Governer Viral Acharya. In of the conference I attended, he covered in his speech this point that he get update more from newspaper about resolution than from system !!! This was on lighter note while brining importance of availablity of information for development of bond market.
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Thanks Dhiraj. This was very helpful.
Does anyone know why Electrosteel Steels has been going up daily in BSE?
Its been on 5% UC ever since the face value was reduced. It went from 17 to 50 and still going up.