Monnet eyes JSW deal to escape insolvency Gets time until Monday from NCLT for next hearing
In line for insolvency, Monnet Ispat is looking for a window in an earlier buy-out offer from the Sajjan Jindal-promoted JSW Steel. The company on Thursday told the National Company Law Tribunal (NCLT) that it was in discussion with JSW Steel for a workable option.
“I have made some suggestions to the management of Monnet with regard to JSW Steel and hence seek time until Monday for the next hearing,” a Monnet Ispat lawyer told the NCLT.
In February, JSW Steel had made an offer to acquire stake in Monnet Ispat. Though the bid continues to stand valid under the Joint Lenders’ Forum, the lenders’ consortium, headed by the State Bank of India (SBI), had not approved the proposal.
“I do not know whether the management would go by the suggestions made but would need more time for sure to discuss with JSW Steel,” the lawyer said.
Officials of JSW Steel were not reachable. “The SBI is not ready to wait till Monday, as the bank has been given instructions from the RBI (Reserve Bank of India) to resolve the issue as early as possible,” said the bank’s lawyer to the NCLT. The SBI is the lead banker to Monnet. The tribunal reprimanded the SBI for ambiguity in its earlier petition. It had wrongly stated the claim amount.
“It is important that you clearly state the claim and also the default amount. Your application does not even have the date on which the loan has defaulted,” the NCLT told the bank’s lawyer. “Once you are at the NCLT, the RBI notification does not matter, your application has to be accurate,” the tribunal added.
The SBI said Monnet Ispat’s total debt to the bank and its associates was ~2,242 crore and the latter had defaulted on ~1,539 crore as on June 21. The latest asset classification of Monnet Ispat has also been recognised as substandard by the lenders, the SBI lawyer informed the NCLT.
The bank stated it had from time to time disbursed loan amounts to the company, even when Monnet had already moved into trouble and corrective plans were suggested by the Joint Lenders’ Forum. Working capital loans and a $27 million export guarantee facility were provided in 2015, along with non-convertible debentures.
As on March 31, 2016, Monnet Ispat carried a consolidated net debt of ~12,000 crore. The debt-equity ratio is 9.26 and it has been making heavy losses for a couple of years even at operating levels. While topline of the Monnet has contracted, its net worth eroded significantly, year after year.
Monnet’s lawyer requested the NCLT judge to first see the outcome of the Essar Steel case before starting proceedings against it. The judge said Monnet should not take this line of reasoning as the cases were different and Essar was before a high court, not the NCLT.
Monnet then asked for time till Monday for a written representation and possibly a resolution plan to be submitted before the court. The judge, therefore, deferred the case till Monday.
“A lot depends on what happens in the Gujarat High Court regarding the Essar case. It seems all the companies facing insolvency charges would take the same line of reasoning, trying to stall the cases,” said a person close to the development.
The Sandeep Jajodia-promoted Monnet Ispat has been in losses for the past three years, primarily on account of a slowdown in the steel sector. In 2016-17, its losses jumped to ~2,132 crore, eroding its net worth, which stood at minus ~1,602 crore. The losses stood at ~381 crore in the quarter ended June 30, 2017.
Under the Insolvency and Bankruptcy Code, once a lender or any other aggrieved party files a petition which is accepted by the NCLT, court-approved, plaintiff-appointed ‘insolvency professionals’ (IPs) take over the management. The IPs try to revive the company over the next 180 days, extendable by another 90 days. If a resolution is not reached, the company is deemed insolvent, triggering liquidation. Creditors have the first charge on assets.
Empowered by the Banking Regulation (Amendment) Ordinance, the RBI constituted an internal advisory committee (IAC), which after its first meeting on June 12, agreed to focus on large stressed accounts and took for consideration those accounts which were classified partly or wholly as non-performing from among the top 500 exposures in the banking system.
The IAC recommended for insolvency reference all accounts with debt greater than ~5,000 crore, 60 per cent or more of which had been classified as non-performing by banks as of March 31, 2016. “Under the recommended criterion, 12 accounts totalling about 25 per cent of the current gross NPAs of the banking system would qualify for immediate reference under IBC,” the RBI stated on June 13.