Bank haircuts on NPAs go up to 80%

Nine of the 12 firms on RBI list enter bidding stage

As nine of the 12 companies on the Reserve Bank of India’s (RBI’s) first list of non-performing assets (NPAs) enter the bidding stage, the average haircut on bad loans, or loss to banks based on the offers made by suitors in five cases, ranges between 50 per cent and 80 per cent.

The least loss is likely to be in the case of Bhushan Steel, for which JSW Steel has offered ~280 billion of cash and equity worth ~17 billion to banks. Bhushan Steel owes banks ~560 billion.

The steepest haircut, however, is due to Jyoti Structures, which has got just one bid, from a clutch of high net worth individuals (HNIs).

So far, the insolvency process has resulted in a mixed bag for the banks, with some of the cases going through a rebid and revision in offers. Alok Industries is going through a rebid, and Amtek Auto through a revision in offers. Liberty House has submitted a revised offer for the company. Earlier, lenders had rejected the offers made by Liberty House and Deccan Value Investors because they were below the liquidation value. A Liberty House spokesperson said the company had shown an interest and submitted a revised offer.

In some of the cases, there could be some upside in offers. For instance, for Electrosteel Steels, Vedanta has submitted an offer of ~45 billion, but Tata Steel has also written to the committee of creditors on revising its offer. In the case of Monnet, JSW has upped its offer from the earlier ~24 billion to ~27 billion.

Bhushan Steel and Bhushan Power & Steel just invited bids. In both the assets, JSW Steel is pitted against Tata Steel. It will have to be seen whether the highest offer will be matched or whether the offer is upped after negotiations. On Monday, bids will be invited for Essar Steel.

Banking industry sources said it was the private sector banks that were ready to negotiate fast and sell assets at even 50-60 per cent of the debt but the public sector banks were resisting settlements due to fear of persecution later. Public sector banks want companies to undergo liquidation under the National Companies Law Tribunal rather than any settlements. But there are cases like Lanco Infratech in which lenders are apprehensive. Four lesser-known companies have submitted bids.

Even besides the 12 companies identified by the RBI for resolution, banks have sold assets at a higher haircut.

For example, in the case of cement firm Murli Industries, banks have liquidated the company to Dalmia Cement at a haircut of 79 per cent. The company had to be liquidated at marginally above its liquidation value as the plant was shut for a few months. But in the case of Binani Cement, the asset is being sold at a price higher than its debt because the bidders say the company can be turned around easily.

JSW Cement had made the highest offer for Binani Cement but banks have asked for rebids because bidders such as Rakesh Jhunjhunwala have offered to better JSW Cement’s bid.