ABG SHIPYARD

Background

ABG Shipyard Ltd., the flagship company of ABG group was incorporated in the year 1985 as
Magdalla Shipyard Pvt. Ltd. with the main objects of carrying Shipbuilding and Ship Repair business.
In a span of 15 years from the year 1991, the company has achieved the status of the largest private
sector shipbuilding yard in India with satisfied customer base all around the world. The registered
office and the yard are situated at Surat in the state of Gujarat and the corporate office is in
Mumbai. ABG Shipyard builds a range of commercial vessels such as self-loading and self-discharging
bulk carriers, container ships, floating cranes, dynamic positioning ships, offshore supply vessels, etc.
ABG was granted clearance from the government of India to build warships and various other
vessels for the Indian Navy. ABG is the second private shipyard to receive such a license after
Pipavav Shipyard.

Downfall-

ABG Shipyard was hurt by an industry slump as freight rates declined along with global trade,
worsened by a domestic downturn. All the four shipyards lost majority of their global order book
steadily from 2011 onward as prices of ships kept falling. Buyers cancelled orders and took their
money back, leaving behind large unfinished ships with the yard. This resulted in shipyards facing
large working capital needs. In the March quarter of 2016, the company had posted a loss of Rs1,710
crore and had an outstanding debt of Rs16,000 crore.

Insolvency Proceeding-

The insolvency petition for ABG Shipyard was admitted in the Ahmedabad bench of NCLT in August
2017. The petition was filed by ICICI Bank.

Even before the company was referred to NCLT, Reliance Defence and Engineering Ltd., Shapoorji
Pallonji Group and Liberty House Group of UK had shown interest in buying out the ABG Shipyard.
Post its admittance in NCLT, in three rounds of bidding, the company had only a sole bidder in the
form of Liberty House UK, which had offered Rs 5,600 crore for acquiring the company, which would
have been payable only from the fifth year, along with the condition of no interest payments in the
interim period. The lenders had turned down this offer stating that the bid was too low, along with
no upfront payment of cash. Another reason as to why lenders had been wary of Liberty House has
been that it had not honoured its commitments related to the resolution plans for Adhunik Metals
and Amtek Auto, the two other companies referred to in NCLT.

Lenders had placed a liquidation value for Rs 2,200 crore for ABG Shipyard, while the company owed
Rs 18,254 crore as debt. The company had a total of 22 lenders. ABG Shipyard owed Rs 5,304 crore
to ICICI Bank, Rs 2,573 crore to IDBI Bank and Rs 2,373 crore to State Bank of India (SBI) as the top
three lenders. In March 2019, finally, the resolution professional for ABG Shipyard filed an
application with the NCLT seeking liquidation of the company. The Committee of Creditors (CoC) led
by ICICI Bank approved the resolution backing up the liquidation plan.

According to the 270-day deadline, the resolution process of the company should have been
completed by April 28, 2018. However, the final order for liquidation of ABG Shipyard was on April
25, 2019.When ABG Shipyard eventually gets liquidated, the lenders will have to take a haircut of
more than 85%. The whole insolvency process for ABG Shipyard would have taken close to two
years.
 ALOK INDUSTRIES LTD.

Background-

Alok Industries Ltd. was established in 1986 as a textiles company and it became a public limited
company in 1993. The company is a manufacturer of home textiles, garments, apparel fabrics and
polyester yarns, selling directly to manufacturers, exporters, importers, retailers and garment
brands, with a presence in the cotton and polyester segments. The company exports its products to
over 90 countries across the United States, Europe, Latin America, Asia and Africa.

Downfall-

The story of Alok Industries case of ambitious debt-fuelled expansion gone wrong.

Between 2004 and 2013, the company undertook large-scale expansion. Most of it was funded
through debt. It spent more than Rs 10,000 crore on building up its spinning, weaving, processing &
garmenting units. But a combination of factors including domestic and global market conditions as
well as the company’s mistakes where the factors leading to the downfall.

Its domestic retail plans failed to take-off and the share of exports slipped as the company could not
maintain market share amidst global competition. To add to this, the company’s unrelated
diversification into sectors like real estate weakened its finances further, eventually pushing the
company into bankruptcy.

INEFFECTIVE EXPANSION-
Studies done by analysts says, not only the company over-invest but it also over-produced.

Large capex and high inventory maintained in anticipation of demand impacted the company.
Bhavesh Chauhan an analyst tracking textile companies with IDBI Capital, adds that Alok Industries’
choice of investments was also questionable. For instance, Alok Industries invested in the spinning
business which already had excess capacity in India. This failed to generate commensurate revenues
for the company, said Chauhan.

The company failed to read the sector well, an analyst who tracked the company said, In the textile
industry, companies expand only once the existing capacity is well utilised. Alok Industries ignored
this fact and expanded its capacity continuously.

As a result, Alok Industries failed to utilise its assets well. Its asset turnover ratio, which indicates the
efficiency of deploying assets to generate revenue, remained below one times and declined sharply
over the last few years.

DIVERSIFICATION GONE WRONG-

Alok Industries’ ambitions did not end with expanding capacity. The company also wanted to get
into new business lines – some related, others unrelated .

It aggressively expanded into the retail market in India through ‘H&A Stores’. It also forayed into the
U.K. market with ‘Store Twenty-One’. At its peak, in financial year 2011-12, the company had nearly
350 retail stores in India and 221 stores in the U.K. The strategy did not pay off and the company
had to close down all its stores in India. In the U.K., the company still has close to 100 stores and is
planning to ‘exit this business at the earliest opportunity.’
In 2007, the company had entered the real-estate business by acquiring commercial property in
Lower Parel, Mumbai though its real estate subsidiary – Alok Infrastructure Ltd. This locked up large
amounts of capital. However, depressed market conditions in real estate space, restricted the
company’s ability to exit this space. It was stuck in some premium properties in South and Central
Mumbai, like Peninsula Business Park.

WAY TO DEBT DEPRESSION-

The unbridled expansion led to a build-up of debt.

Between March 2007 till September 2013, the company saw its debt jump six times to Rs 20,230
crore. However, during the same time period, company’s cash flow from operations were much
lower, putting its ability to repay in doubt.

To add to company’s distress, interest rates started to rise. Between 2009 and 2011, the benchmark
repo rate rose from 4.75 percent to 8.50 percent. The company’s own interest costs jumped to
about 13 percent from 7.5 percent. This put pressure on the company’s ability to service debt.

Over time, interest costs became the second largest expense for Alok Industries after raw materials
Insolvency Proceeding-

The insolvency petition against Alok Industries was admitted in the New Delhi Bench of NCLT in 18 th
July 2017. This insolvency petition was filed by the State Bank of India.

Accordingly, the Committee of Creditors was formed, of which ICBC (Industrial and Commercial Bank
of China), being one of the creditors, also was part of. In its first meeting, on 16 th Aug 2017, the CoC
confirmed Ajay Joshi to continue as the resolution professional.

It was reported in December 2017, that the insolvency resolution professional hired for Alok
Industries had invited for fresh bids, as the company had not received any bids in the first round till
the last date of submitting the Express of Interest (EoI), i.e. 12 October.

By April 2018, Reliance Industries-JM Financial Asset Reconstruction Company was the sole bidder
for Alok Industries. NCLT had admitted claims worth Rs 29,615 crore owed to the financial creditors.
However, just a few days later, Reliance Industries informed that it did not get the approval from the
Committee of Creditors (CoC) as only 70% of them had approved the resolution plan, when the
minimum threshold was 75%. Earlier, Reliance Industries had made an offer of Rs 4,950 crore which
they had revised slightly to Rs 5,050 crore. The Committee of Creditors were not in favour of the
offer from Reliance Industries as it was not much higher than the liquidation value of the company,
which was Rs 4,200 crore. Accepting the offer would have meant that the lenders would have taken
an 83% haircut for their loans.

In an attempt to save the company, employees of Alok Industries had filed an interlocutory petition
through Alok Employees Benefit and Welfare Trust urging the lenders who had opposed the offer
from Reliance Industries to save the company from liquidation. The financial creditors who were
opposed to the deal included Dena Bank, Central Bank of India, IDBI Bank, Union Bank of India, and
LIC of India. Alok Industries employs more than 18,000 people, which include 12,000 permanent
employees and 6,000 temporary staff. Similar to the petition filed by the employees of Alok
Industries, ten operational creditors of Alok Industries had also filed an interlocutory petition to
consider the resolution plan submitted by Reliance Industries in order to save the company from
liquidation.

The Committee of Creditors finally approved the resolution plan for Reliance Industries-JM Financial
ARC on 22 June, which was approved by 72.19% of the lenders. NCLT had directed the CoC to take a
re-voting considering the IBC amendment in June 2018 which reduced the voting threshold from
75% to 66%. This move by the government enabled Reliance Industries to acquire Alok Industries.
However, this was met by opposition from the bank unions which alleged that the government had
brought in the amendment merely to favor Reliance Industries forcing a huge haircut for the lenders.
Some leaders of political parties also questioned this move in Parliament stating that the
government should have referred this to a joint committee instead of bringing the change through
an ordinance.

The NCLT finally approved the resolution plan of Reliance Industries-JM Financial ARC in March
2019, thus completing the resolution process for Alok Industries. The 83% haircut forced upon the
lenders raised several questions over the efficacy of the IBC process in addressing the NPA crisis for
the banks, especially when there have been instances of sole bidders, thus lacking any competition
in determining the best deal for the lenders and the bidders submitting resolution plans which are
barely higher than the liquidation value.
 AMTEK AUTO LTD.

BACKGROUND-

Amtek Auto Ltd. was incorporated in 1988. The company is an integrated auto component
manufacturer, engaged in forging, iron casting, aluminum die casting, machining and sub-assembly.
Amtek Auto also manufactures components for non-auto sectors such as the railways, specialty
vehicles, aerospace and agricultural and heavy earth moving equipment. It has facilities across India,
Japan, Thailand, Germany, Hungary, Italy and Romania, among others.

DOWNFALL-

Experts say the company went into this state due to a string of acquisitions abroad. The problems
began making news in 2015, when CARE ratings suspended Amtek’s bond ratings and JP Morgan
froze redemptions. The company reported standalone losses of Rs 889.6 crore for the quarter
ending this June, more than double the loss in the same period a year before. Total income from
operations during the quarter was Rs 447 crore, down 13.4 per cent from a year before.

INSOLVENCY PROCEEDING-

Amtek group has a number of subsidiary companies; one of them is Amtek Auto which defaulted on
bond repayments of close to Rs 800 Cr. in September 2015. Since then Amtek has been trying to sell
various group businesses to reduce the debt in its books.

The insolvency petition for Amtek Auto was admitted in the Chandigarh bench of NCLT in July 24
2017. The insolvency application was filed by Corporation Bank. Amtek Auto faced claim of Rs 12,722
crore from the financial creditors and Rs 223 crore from operational creditors. UK-based metals
group Liberty House and Deccan Value Investors, a US-registered hedge funds, emerged as the top
bidders for Amtek Auto, by the end of December 2017.However, lenders rejected the bids from both
Liberty House and Deccan Value stating that the bid amounts were lower than the liquidation value
and were unacceptable to the lenders. It was also speculated that at one point the lenders were
considering to sell Amtek Auto along with its subsidiaries Castex Technologies and Metalyst Forgings
as a single offering, which were undergoing separate bankruptcy proceedings.

Around April 2018, the Committee of Creditors approved the resolution plan of Liberty House after it
revised its bid to offer Rs 4,334 crore, which entailed a 66% haircut for the lenders. However,
Resolution Professional of the company sought clarification from NCLT regarding the eligibility of
Liberty House, as it was deemed ineligible for non-payment dues of $3 million of Indian Exim Bank.
NCLT gave a go ahead to Liberty House in July 2018 to acquire Amtek Auto. In November 2018, it
was reported that Liberty House had missed the deadline to pay the dues to the lenders of Amtek
Auto.

Over the inaction of Liberty House, the Committee of Creditors (CoC) of Amtek Auto sought to bar
Liberty House from bidding for any other insolvent company. The CoC appealed to the NCLT bench
to invoke Section 74 of the IBC where it said there was "lack of bonafide" intent on the part of the
company to follow the terms of resolution plans approved by the adjudicating authority. The
company also wanted to invoke Section 60 (5) of IBC Act against Liberty House as the company failed
to make payments according to the resolution plan approved by the tribunal. Section 74 (3) of the
IBC states that officials of successful resolution applicants can be imprisoned for a minimum of one
year with a maximum tenure of five years, and fined a minimum of Rs 1 lakh with the maximum
penalty of up to Rs 1 crore if they are found to violate terms of the plan approved by the NCLT under
Section 31 of the IBC.

Finally, in February 2019 NCLT granted permission to conduct a fresh round of bidding for Amtek
Auto after backing out of Liberty House. NCLT had given a reduced time-frame of 140 days to re-do
the insolvency process. In March 2019, the lenders further sought an approval from NCLAT for the
second round of bidding. The NCLAT said that it would first like to hear the second-highest bidder,
Deccan Value, on this matter, as Deccan Value was considering revising its offer.

Deccan Value Investors (DVI) put in a bid of Rs 2,700 crore, out of which Rs 500 crore is upfront cash
payment and rest future receivables. DVI's resolution plan dated January 17, 2020, was approved by
the CoC by a majority of 70.07 per cent votes at its meeting held on February 7, 2020.

The National Company Law Tribunal (NCLT) has approved a Rs 2,700-crore bid by Deccan Value
Investors (DVI) for the debt-ridden Amtek Auto Ltd. The Chandigarh bench of the NCLT has approved
the resolution plan by DVI for the auto components maker, which has a total debt of around Rs
12,700 crore.
 BHUSHAN STEEL LTD.

COMPANY PROFILE-

Bhushan Steel Ltd was incorporated in1983 with the name Jawahar Metal Industries Pvt Ltd. In 1987,
Brij Bhushan Singal and his sons Sanjay Singal, Neeraj Singal and associate companies took over the
management of the company by acquiring the entire stake. In the year 1989, the company became a
deemed public limited company. In the year 1992, the company was renamed as Bhushan Steel and
Strips Ltd after diversifying into wide-width cold-rolled (CR) steel strips. Also, they completed the
cold rolling plant during the year. In the year 1993, the company came out with their first public
issue to finance their forward integration project for the manufacture of 1,00,000 tpa of continuous
annealed/ galvanised steel strips.

The company has a portfolio of flat products. The company is producing cold rolled close annealed
coils (CRCA), galvanized sheets, precision tubes, high tensile steel, hardened and tempered steel
strip (H&T strips), wire-rods, colour-coated sheets and galume. They also produce, sponge iron, pig
iron, billets and slabs.

DOWNFALL-

In the year 2001, the company implemented the expansion project of 2,50,000 TPA of Cold Rolling
Cum Galvanising & Tube Complex in Khopoli, Maharashtra at cost of Rs 4860 million. In the year
2003, they entered into a strategic alliance with Sumitomo Metal Industries of Japan for the process
know-how for manufacturing of automotive steel sheets. During the year 2004-05, the company
commissioned the Cold Rolled (Narrow) and Pipe plant at Sahibabad. During the year 2005-2006, the
company commissioned the Galume line, an aluminium and zinc coated patented product of the
company for the first time in the country at Khapoli plant. The company changed its name from
Bhushan Steel and Strips Ltd to Bhushan Steel Ltd with effect from April 12, 2007.

During the year 2007-08, the company successfully completed Phase I of the Orissa Project. The
company started the production facilities of Sponge Iron (680000 tpa), Billets (300000 tpa) and
Power Plant (110 MW) thus completing Phase-l of Orissa Project on schedule. The company acquired
a major stake in Bowen Energy Ltd of Australia. Additionally, through their 100% subsidiary Bhushan
Steel (Australia) Pty Ltd, the company entered into a JV to develop their coking coal/thermal coal
projects in Australia. The company incorporated two wholly owned subsidiaries namely Bhushan
Steel (Australia) Pty Ltd and Bhushan Steel Global FZE.

During the year 2008-09, the company successfully commissioned the Cold Rolling Mill (narrow)
50000 tpa, Tube Mill (40000 tpa) and balancing equipment viz. Pass Mill, CR sillter, Cut to Length
Line and annealing furnaces etc. at existing Khapoli Plant. The group grew quickly by importing
sophisticated Japanese machinery to make steel for India’s nascent automobile industry. But
“Bhushan Steel’s control over availability, quality and cost of input steel was very limited,” (Source:
company’s 2009-10 annual report).
So in 2003, they decided to build an integrated steel plant in Odisha. This was a time of great
optimism for the steel sector. Banks were eager to lend to a company with an impressive order book
of clients like Maruti Suzuki, Mahindra and Mahindra, and Tata Motors. “Banks were getting into
project finance for the first time,” But steel is a cyclical business, and as Chinese demand tapered
after the 2008 Olympics, prices plummeted as fast as they had once peaked. For Bhushan Steel, it
was a gust of headwind. “In a slowdown, steel demand in India doesn’t drop. Prices do, with debt
you grow big fast, but when bad times come, the debt suddenly becomes a massive burden.

By 2010, Bhushan Steel was already shouldering loans worth Rs.11,404 crore. Still, the company
went on a borrowing spree to finance the next phase of construction. By 2012, the steel industry was
slipping behind on interest payments as steel prices fell to $300/tonne that December from a 2008
peak of $1265/tonne. Banks were conflicted: pull the loans and book a loss, or keep lending and
hope the sector revived. Bhushan’s lenders pinned their hopes on the Odisha plant reaching full
capacity.It never did.

By March 2014, it was clear the company was in trouble. Profit had shrunk to a mere Rs. 62 crore,
while the company was spending more than Rs 1,600 crore a year in interest payments alone,
according to Bhushan’s 2014 annual report. When Bhushan Steel was on the brink of default in
March 2014, SBI and a consortium of lenders sanctioned fresh loans. But as steel prices remained
stubbornly low, and Bhushan’s interest costs escalated, the company’s total debt rose 30% in two
quick years: from Rs.35,710 crore in 2014 to Rs.46,062 crore in March 2016.

INSOLVENCY PROCEEDING-

The insolvency petition against Bhushan Steel was admitted in New Delhi Bench of NCLT in July 2017.
This insolvency petition was filed by State Bank of India. Tata Steel and JSW Steel had emerged as
the main contenders for acquisition of Tata Steel. It was speculated that JSW Steel had submitted a
bid for Rs 28,000 crore. JSW Steel was submitting this bid jointly with India Resurgence Fund, a
partnership between Piramal Enterprises and Bain Capital. Earlier, Arcelor Mittal had expressed
interest in submitting a bid for Bhushan Steel, but, later, did not submit any bid.

In May 2018, NCLT approved the bid of Tata Steel for acquiring Bhushan Steel. In addition to it, NCLT
also imposed a fine of Rs 1 lakh against the employees of Bhushan Steel who had filed a petition in
NCLT opposing the bid from Tata Steel. Similarly, NCLT also dismissed the plea of engineering and
construction firm Larsen & Toubro (L&T), which had sought higher priority in the recovery of loan
and NCLT imposed also a fine of Rs 1 lakh on the company. A plea by Bhushan Energy to continue its
power purchase agreement with Bhushan Steel was also rejected.

Tata Steel had offered to pay Rs 35,200 crore to the lenders, along with paying Rs 1,200 crore to the
operational creditors. Bhushan Steel owed Rs 56,080 crore to its lenders and Rs 1,332 crore to its
operational creditors. Tata Steel had also offered to provide 12.27% equity to the financial creditors.
Almost 99.8% of the lenders had approved the resolution plan from Tata Steel.

The acquisition of Bhushan Steel by Tata Steel was done through Bamnipal Steel Ltd. (BSPL), a
wholly-owned subsidiary of Tata Steel, through the acquisition of controlling the stake of 72.65%
stake in Bhushan Steel. During the time of the acquisition, Bhushan Steel said, “The investment from
BNPL in BSL has been done through a combination of equity of Rs 158.89 crore and inter-corporate
loan of Rs 34,973.69 crore. Additionally, Rs 100 crore has been paid by BNPL to the financial
creditors of BSL as consideration for novation of remaining financial debt of BSL. The acquisition is
being financed through a combination of external bridge loan of Rs 16,500 crore availed by BNPL and
balance amount through investment by Tata Steel in BNPL. The bridge loan availed by BNPL is
expected to be replaced by debt raised at BSL over time.

The liquidation value of Bhushan Steel was Rs 14,451 crore. In this particular case, lenders were able
to get a fairly higher value compared to the liquidation value. Tata Steel faced some hiccups when
promoters of Bhushan Steel had appealed in NCLAT that Tata Steel was ineligible to bid for Bhushan
Steel under Section 29A of IBC. Section 29 A of the IBC mandates that a person convicted for any
offence punishable with imprisonment for two years or more is ineligible for submitting a resolution
plan. Tata Steel UK, a foreign subsidiary of Tata Steel, was fined by an English Court in February 2018
under the UK Act which had a provision of imprisonment for a term not exceeding 12 months, or a
fine, or both. NCLAT clarified that provisions in Section 29A stipulate that any entity which has been
convicted for any offence punishable with imprisonment for two years or more cannot be equated
with Section 33(1)(a) of the UK Act. The NCLAT also rejected the claims of operational creditor L&T,
which had opposed Tata Steel's resolution plan seeking a higher priority in debt resettlement.

Tata Steel received approval from the government in November 2018 to change Bhushan Steel’s
name to Tata Steel BLS Ltd. This acquisition of Bhushan Steel enabled Tata Steel to further
consolidate its position as one of the top steel companies of India. This acquisition also became a
landmark acquisition for the Insolvency and Bankruptcy Code framework since the deal ensured that
lenders had only a 37% haircut, which is quite less than the haircuts which lenders had to face for
other companies.
 PERFORMANCE ANALYSIS

Performance indicators Before CIRP as on During CIRP as After CIRP as on

31.03.2017 on 31.03.2018 31.03.2019
Turnover (Rs. Crore) 15,027.30 17,404.43 20,891.60
Sales and Production Volume (in 3.42 3.84 4.16
MT )
Net Profit Ratio (%) -23.30% -142.57% 8.20%
PBDIT (Rs. Crore) 2993.98 2299.93 3931.00
EBIDTA Margin % 19.88 12.67 18.18
Interest Coverage ratio (Times) 0.55 0.08 0.66
Interest and Financial charges (Rs. 5426.76 5304.9 3752.18
Crore)
EPS (Rs.) -154.56 -195.45 17.45
Inventory Turnover Ratio 0.13 5.63 5.93
Current Ratio 0.21 0.11 1.91
Debt to Equity Ratio 24.59 0.03 0.93
Net Debtors (Rs. Crore) 1525 1220 697
Debtors Turnover ratio (Days) 31.10 28.78 16.74
Net Cash Flow from Operating 752 1789 5800
activities (in Crore)

Pre and During CIRP

 The performance of the company improved significantly in 2017-18 (during the period of CIRP) as
compared to pre CIRP. Turnover increased by 15.82%. Sales and production volume (in MT)
increased by 12%. Net debtors were reduced by 20% and net cash flow from operating activities
increased by137% as a result of better management control and operational efficiency which
arrested the progressive decline in key performance indicators witnessed in the period prior to CIRP

During and Post CIRP

 The results of financial year 2018-19 are a testimony to the overall improvement the company has
been able to achieve in a short period of time. There was an increase in revenue by 20.04% in 2018-
19 (during / post CIRP) over last year due to production ramp up. This was largely compensated by
an increase in raw material prices due to increase in cost of Coking Coal, Hot Rolled Coil (HRC) and
other Alloys.

 During the financial year 2018-19, the saleable steel production of Tata Steel BSL stood at 4.16
million tons that is more than 10 per cent over FY18 (3.8 MTPA). This has been possible because of
higher mill availability with improvement in maintenance practices and uninterrupted raw material
supply
  Current Ratio Improved in 2018-19 primarily on account of reduction in the current liabilities due
to reduction in current portion of long-term borrowings and short-term borrowings (due to
repayments).

 EBITDA Margin Improved in 2018-19 primarily on account of higher operating profits.

 Debtor Turnover Ratio improved in 2018-19 primarily on account of introduction of channel

financing facilities across the distributor segment and discounting arrangements across the other
segments.

 Interest Coverage Ratio Improved in 2018-19 primarily on account of higher operating profits and
reduction of finance cost on account of reduction in external borrowings.

 Total amount of loans (including interest) which were outstanding during FY18 were
approximately Rs.58,000 crore with an interest rate varying from 9% to 20% including penal interest.
The existing debts of the Company were settled by paying Rs. 35,200 crore. Therefore, the loan
amount has decreased significantly in 2018-19 YoY resulting in decline in finance cost from Rs 6,305
crore in 2017-18 to Rs 3,752 crore.

FY 2019-20

 The company announced its Q3 FY20 and 9M FY20 key production and sales figures (provisional)
on 9th January, 2020. The company achieved crude steel production of 1.154 MT in Q3 FY20
compared to 1.067 MT in Q2 FY 2020 and 1.039 MT in Q3 FY19. For 9M FY20, the crude steel
production stood at 3.343 MT compared to 3.132 MT in corresponding period of previous year.The
company's sales stood at 1.254 MT in Q3 FY20 compared to 1.041 MT in Q2 FY 2020 and 0.0917 MT
in Q3 FY19. For 9M FY20, the sales stood at 3.159 MT compared to 2.911 MT in corresponding
period of previous year. Net sales in the financial year 2019-20 are: Q1 – Rs. 4124.45 crore, Q2 – Rs.
4311.67 crore and Q3 – Rs. 5038.11 crore
 ESSAR STEEL LTD.

COMPANY PROFILE

Essar Steel Ltd. was established in 1976. The company is a fully integrated flat carbon steel
manufacturer based in India, with a presence in steel markets of Asia and North America – from iron
ore to ready-to-market products – with a current capacity of 10 million tone’s per annum (MTPA).
Essar Steel’s manufacturing facility comprises ore beneficiation, pellet making, iron making, steel
making, and downstream facilities including cold rolling mill, galvanizing, pre-coated facility, steel
processing facility, extra wide plate mill and a pipe mill. Currently Essar Steel is owned and operated
by ArcelorMittal Nippon Steel India Limited. Mr. Aditya Mittal, is the Chairman of ArcelorMittal
Nippon Steel and Mr. Dilip Oommen is the CEO.

INSOLVENCY PROCEEDING-
The insolvency petition against Essar Steel was admitted in the New Delhi Bench of NCLT in August
2017. This insolvency petition was filed by State Bank of India. By March 2018 there were only two
bidders for Essar Steel, i.e. Mauritius-based Numetal and UK-based Arcelor Mittal.

Numetal is a Special Purpose Vehicle (SPV) that focuses on steel and infra space along with
manufacturing. The shareholders of Numetal are VTB Capital, Russian Steel and engineering
company TPE. Other promoters involved with Numetal include Indo International (a Dubai-based
steel trading firm) and Aurora Enterprises. Rewant Ruia, son of one of the Essar Group promoters,
Ravi Ruia, was a beneficiary in Aurora Enterprises and owned 25% in Numetal. VTB Capital owns
majority in Numetal. Essar Group had clarified that Rewant Ruia had resigned from the board of
Essar Steel back in 2012 and was in no way related to Essar Steel promoters.

Numetal had challenged Arcelor Mittal’s eligibility to bid as Arcelor Mittal’s Indian joint venture,
Uttam Galva, was a defaulter and was undergoing insolvency proceedings in NCLT. Arcelor Mittal had
also questioned Numetal’s eligibility because of Rewant Ruia’s ownership in the company.

By April 2018, there were some developments regarding the bidders for Essar Steel. JSW Steel had
joined hands with Numetal and Vedanta also joined in the race along with Arcelor Mittal, submitting
fresh bids. Earlier, Insolvency Resolution Professional had asked to submit for fresh bids after the
bids from both Numetal and Arcelor Mittal were found to be noncompliant.

The resolution professional for Essar Steel informed NCLT in April 2018 that Rewant Ruia was one of
the ultimate beneficiaries and owner of a shareholder of Numetal through various holding
companies and trusts. The Resolution Professional informed NCLT that Numetal was a joint venture
between Aurora Enterprises, Crinium Bay, Indo International Ltd and Tyazhpromexport (TPE).
Numetal was incorporated on October 13, 2017, a week before submitting the Expression of Interest
(EoI) for acquiring Essar Steel. At the time of incorporation, the entire shareholding for Numetal was
held by Aurora Enterprises Ltd. (AEL), which, in turn, was held by Aurora Holdings Ltd., which was, in
turn, held entirely by Rewant Ruia (through a trust and another holding company). Further, on
October 18, 2017, AEL transferred 26.1% of its shareholding to Essar Communications Ltd. (ECL).
Later, ECL transferred its entire shareholding to Crinium Bay Holdings Ltd. (indirect wholly-owned
subsidiary of VTB Bank) and AEL transferred its shareholding to Crinium Bay, 25.1% shareholding to
Indo International Ltd. and 9.9% to Tyazhpromexport (TPE). On the date when Numetal submitted its
resolution plan (February 12, 2018), its shareholding was as follows: 40% held by Crinium Bay, 25.1%
held by Indo International Ltd, 9.9% by Tyazhpromexport and 25% by AEL. With Ravi Ruia being
father of Rewant Ruia, the Resolution Professional said, Numetal was ineligible to bid under Section
29A of IBC, as Rewant Ruia was deemed to be acting in concert with Ravi Ruia.

It was revealed in May 2018 that Numetal had made a bid of Rs 37,000 crore in the second round of
bidding. In the first round, Numetal had made a bid of Rs 19,000 crore, while Arcelor Mittal had
made a bid of Rs 32,000 crore. The disclosure was made even as NCLT declared the second round
invalid and directed the resolution professional not to open those bids. In the second round,
Numetal dropped Rewant Ruia, son of Ravi Ruia, promoters of Essar Steel, and replaced him with
JSW Steel. Essar Steel owed more than Rs 49,000 crore to the lenders.55 The NCLAT asked Aurora
Enterprises promoter Rewant Ruia to file an affidavit stating that he has no business with Ravi Ruia
in the affairs of Numetal, which was in the race to acquire debt ridden Essar Steel.
In October 2018, Essar Steel promoters took everyone by surprise when it made an offer of Rs
54,389 crore to the lenders to withdraw Essar Steel from the Corporate Insolvency Resolution
Process if 90% of the lenders agreed to it under Section 12A of IBC. Section 12A was inserted in June
2018 which allows withdrawal of applications admitted under Section 7, 9 or 10 of the Insolvency
and Bankruptcy Code. The plan included an upfront cash payment of Rs 45,507 crore to the lenders,
resulting in 100% recovery for the lenders.

Earlier, apart from Numetal and Arcelor Mittal, Vedanta had offered Rs 34,000 crore plus Rs 500
crore equity in the company. Arcelor Mittal had raised objections to this move of Essar Steel
promoters stating that Section 12A was not applicable in case of Essar Steel. In end of January 2019,
NCLT rejected the offer made by Essar Steel promoters on the grounds of violating Section 12A,
paving way for the takeover by Arcelor Mittal.

In the first week of March, 2019, NCLT Ahmedabad approved the takeover bid by Arcelor Mittal.
However, immediately after NCLT’s decision, the process got stalled when NCLAT asked the Ruia
family to pay the overdue loan of the entire Essar group before it can propose to take Essar Steel out
of the ongoing insolvency process.

World's largest steelmaker ArcelorMittal has completed the acquisition of Essar Steel on December
16, thereby giving its Chairman and CEO Lakshmi Mittal a presence in his home market, more than a
decade after his first attempt. The company added that it has established a joint venture with
Nippon Steel, called ArcelorMittal Nippon Steel India (AM/NS India), which will own and operate
Essar Steel.

ArcelorMittal had initiated payment for the acquisition of debt-ridden Essar Steel for Rs 42,000 crore
on December 13, making it the single-biggest recovery under the Insolvency and Bankruptcy Code
(IBC).

RUCHI SOYA INDUSTRIES LTD.

COMPANY PROFILE-

Ruchi Soya Industries is headquartered in Indore and was founded in 1986. Ruchi Soya Inds. Ltd is
engaged in the manufacture of edible oils, vanaspati, bakery fats and soya foods. The company is a
leader in the branded edible oil category as well with brands like Nutrela Soyumm (Soyabean Oil),
Ruchi Gold (Palmolein Oil), Sunrich (Sunflower Oil) and Mandap (Mustard Oil).The product range of
the company includes Oil- manufactures wide range edible oils such as soyabean oil, sunflower oil,
cotton seed oil, groundnut oil and mustard oil. It markets these oils under the brand name Nutrela,
Mahakosh and Ruchi Gold. Vanaspati and bakery fats - The company manufactures and markets
vanaspati and bakery fats under the name Nutri Gold and Ruchi No.1.Beverages- Ruchi Soya
manufactures and markets of beverages under name Nutrela Nrich.Soya foods- manufactures and
markets of Soya chunks, granules and flour under the name Nutrela. The company is also engaged in
soap manufacturing and marketing. The company also in the business segment of Oils, Vanaspati,
Extractions, Food Products, Wind Turbine Power Generation.

DOWNFALL-

Manipulation of Castor Seeds Futures-

Ruchi Soya in 2015 bet on castor seeds as prices rose as high as Rs 5,000 a quintal. The company
didn’t hedge the exposure and a 40 percent crash after the new crop arrived and weak global
demand left it with cash losses in the quarter ended March 2016. That led CARE Ratings to
downgrade its bank facilities.

At the same time, it came under the Securities and Exchange Board of India’s scanner for allegedly
manipulating castor seed futures. The February 2016 contract for castor seed fell by 20 percent in
January, and Ruchi Soya and its group entities allegedly had a large portion of the open interest,
according to SEBI’s probe, which forced the National Commodity and Derivatives Exchange to
suspend trading in commodity.

The SEBI investigation revealed that Ruchi Soya had transferred Rs 76.77 crore in January that year
to at least five entities also holding significant positions in castor seed contracts. Finding Ruchi Soya
guilty of market rigging, the regulator barred the company from the securities market.

Duty Double Whammy-

Ruchi Soya imports crude palm oil and sells the refined product that’s used in everything from
cooking oil to shampoos—a business that contributes more than 70 percent of its sales. Being an
agro-processing company, it operates on thin margins. So, an unfavorable duty structure in domestic
and international markets hurt the company even more.

Indonesia, the largest producer, in October 2011 made it cheaper to export the refined palm oil than
the crude product. The South East Asian nation:

 Increased the export duty on crude palm oil by 150 basis points to 16.5 percent.
  Reduced the levy on refined bulk and consumer packed oil by 700 basis points to 8 percent
and 800 basis to 2 percent, respectively. (100 basis points = one percentage point.)

In India, that increased the landed cost of crude palm oil imported from Indonesia and made refined
oil cheaper. As a result, domestic refiners suffered in the second half of the financial year through
March 2012.

The Indian government came to their rescue by increasing the import duty on refined oil to create a
level-playing field in July 2012. But six months later, that benefit was largely undone. India increased
the import duty on crude palm oil without raising the levy on refined oil—making the latter cheaper.
That created cost pressures in a highly competitive domestic industry, Ruchi Soya had then said.

Historically, whenever Indonesia reduced export duties on refined palm oil, imports into India rose
sharply as it was cheaper than importing crude palm oil and refining it. Also industry interactions
reveal low [Indonesian] export duties on refined palm oil impacted business models of Indian players
who traded in refined oils, resulting in lower capacity utilization.

Unhelpful Rain Gods-

India faced a drought-like situation with monsoon staying below normal in 2014 and 2015. Ruchi
Soya’s seed extraction business, which accounts for about 15 percent of its sales, bore the brunt as a
rain shortfall destroyed crops and output fell. Adding to its woes, the production of its biggest seed
export—soybean—remained healthy in overseas markets.
International prices of soybean declined because of healthy crop production in the U.S., Argentina
and Brazil, Crisil’s Gandhi said. “This coupled with low production of soybean crop owing to poor
monsoons in India impacted competitiveness in the international market and consequently its
exports.”

The Business Model-

What made Ruchi Soya vulnerable to these changes was its business model. The company is a
supplier to consumer goods makers and doesn’t sell directly to consumers. That means payment
period is relatively longer, elongating its working capital cycles. The company had to take on short-
term debt to manage the shortfall.
An increase in trade receivables days—a measure of how long invoices remain outstanding—in 2015
brought down cash flow from operations. Ruchi Soya fell into a continuous spiral of borrowing to pay
outstanding short-term debt. And the company eventually failed to pay debt as it couldn’t recover
its receivables. In the year ended March 2018 it wrote off close to Rs 5,000 crore worth of
receivables. That turned the edible oil maker’s net worth negative for the first time in 18 years.

INSOLVENCY PROCEEDING-

The insolvency petition against Ruchi Soya Industries was admitted in the Mumbai bench of NCLT in
December 2017. The petition was earlier filed by Standard Chartered Bank and DBS Bank Ltd
separately in September 2017. These two banks were not part of the Joint Lenders Forum (JLF) and
had moved the NCLT for CIRP against Ruchi Soya in September, individually. Shailendra Ajmera was
appointed as resolution professional (RP) to manage the affairs of the company and undertake the
insolvency proceedings.

Ruchi Soya had a total debt of about Rs 12,000 crore. Ruchi Soya Industries owed around ₹9,345
crore to financial creditors and another ₹2,750 crore to operational creditors. Among financial
creditors, the State Bank of India (SBI) has the maximum exposure of around ₹1,800 crore, followed
by Central Bank of India (₹816 crore), Punjab National Bank ( ₹743 crore) and Standard Chartered
Bank India (₹608 crore).

It was reported in May 2018 that Patanjali Ayurved and Adani Wilmar had submitted similar bids for
acquiring Ruchi Soya and the Committee of Creditors was contemplating to conduct a ‘Swiss
Challenge’ to decide the better resolution plan. Under the Swiss Challenge method there is an open
bidding. By December 2017, Ruchi Soya owed about Rs 12,000 crore to the lenders.

In June 2018, it was reported that Patanjali Ayurved had raised objections over the eligibility of
Adani Wilmar to participate in the bidding process under Section 29 A of the Insolvency and
Bankruptcy Code. Section 29A of IBC states that the bidders for an insolvent company cannot be
allowed to offer a resolution plan if the bidding company is 'connected' to another corporate group
having stressed loans. It had been alleged that Pranav Adani, who is MD of Adani Wilmar and a
relative of Gautam Adani (chief of Adani Group), has been married into the Kothari family, the
erstwhile promoter of Rotomac group, which has been undergoing investigations for siphoning off
loans worth Rs 3,000 crore. This objection came after a recent IBC ordinance, where the definition of
"connected person" had broadened to include "related party" and "relatives", a category that was
expected to include in-laws. Adani Wilmar had come up with an offer of Rs 6,000 crore and Patanjali
group came second with its bid of around ₹5,700 crore, including the infusion of about ₹1,700 crore
into the edible oil company.

It was reported in January 2019 that Adani Wilmar had decided to opt out of bidding for Ruchi Soya
citing delays in the insolvency process, even though it was the highest bidder. Meanwhile, Patanjali
Ayurved had informed the NCLT that it was willing to match the bid by Adani Wilmar. Earlier, the
Committee of Creditors (CoC) had approved the resolution plan of Adani Wilmar with 92% voting. In
March 2019, Patanjali Ayurved offered to revise its bid to Rs 4,350 crore from the previous offer of
Rs 4,100 crore. This excluded capital infusion of ₹1,700 crore into the company. Committee of
Creditors (“CoC”) met to discuss the revised bid of Patanjali and decided to conduct the voting
process on 30th April 2019. The CoC had then approved the Resolution Plan submitted by Patanjali
Group with approximately 96% vote in favour.

As per the plan proposed by Patanjali, out of the ₹4,350 crore offered by Patanjali group, ₹4,235
crore would be utilised to pay creditors while ₹115 crore would be used for capital expenditure and
working capital requirements of Ruchi Soya. As per the regulatory filing made by Ruchi Soya,
₹4,053.19 crore would be paid to secured financial creditors, ₹40 crore to unsecured financial
creditors, ₹90 crore to operational creditors, ₹25 crore to clear statutory dues, ₹14.92 crore to
workmen/employees and ₹11.89 crore to provide counter bank guarantee.
CONCLUSION-

The Insolvency and Bankruptcy Code has proven to be a game-changer in the winding up of
defaulting companies. It has enabled a scenario in which other companies can take over companies
referred to NCLT for expanding their businesses, while providing a speedier resolution for the
lenders who had to spend years in negotiating earlier mechanisms like SARFAESI, DRTs, BIFR, etc.
While the time bound resolution has definitely changed the scenario for the lenders, questions need
to be raised as at what cost the lenders (mostly the Public Sector Banks) have been pushed into
accepting the massive haircuts, ultimately facilitating corporate loot and loss to the public
exchequer. The initial claims of the government of massive recovery of NPAs through the IBC process
has fallen flat, and this would be further rebutted as more data on the insolvency cases come up in
the public domain in the coming months. The insolvency proceedings of the 40 companies under the
RBI’s 1st and 2nd List has shown that barring few exceptions like Bhushan Steel (and probably Essar
Steel, in the future), there is not much scope of recovery for the lenders. While asset-heavy firms like
steel companies had more takers, the EPC firms, which had amassed heavy debts, had hardly any
interested buyers. In fact, lenders of many of these companies got resolution plans only from sole
bidders who quoted a bid value which is marginally higher than the liquidation value. This reflects
that the Insolvency and Bankruptcy Code, in a way, favors the companies willing to acquire these
insolvent firms, rather than coming to the rescue of the lenders who are grappling with the massive
NPA crisis in Indian economy. The IBC has definitely given more teeth to the lenders in terms of
taking the companies to insolvency courts. This has instilled fear in the minds of errant promoters
who went on taking loans from the banks to expand their businesses, taking undue risks, and, at
times, have been caught up with siphoning off funds for other purposes, or causing wilful defaults.
The fear of losing control over their companies, or, getting dragged into the insolvency court by
Financial Creditors, or, Operational Creditors, will make it a more level-playing field for everyone. At
the same time, the government and insolvency regulator IBBI need to ensure that the IBC process is
not misused by Financial Creditors or Operational Creditors by dragging corporate debtors to
insolvency courts over petty matters, or implicating them falsely. Insolvency and Bankruptcy Code
(IBC): Whose Loss, Whose Gain?