Videocon’s debt recast: Lenders take note of plea
In an important test for insolvency laws, lenders to Videocon Industries have agreed to consider an application from the firm’s promoters for debt resolution, under Section 12A of the Insolvency and Bankruptcy Code (IBC).
The Section gives defaulters another chance to repay dues and retain control over their firms, even after a case has been admitted to the National Company Law Tribunal (NCLT) for debt resolution. This is subject to 90 per cent of the lenders agreeing to the proposal.
In case the lenders give their nod, it will be one of the first big-ticket resolutions via Section 12A. The lenders are, on an average, getting 45 per cent of their dues from defaulting companies.
The promoters — the Dhoot family — have offered ~31,300 crore to lenders, to be repaid over the next few years. The promoters first made the application in NCLT Mumbai. The lenders responded to the petition, saying they would consider Dhoot’s application in the next meeting of the committee of creditors scheduled for mid-october.
In their application to the resolution professional, Videocon promoters said their debt resolution application follows the general principal of IBC stated by the Supreme Court, which primarily focused on “GEM” – going concern, employment, and maximum value to all stakeholders.
Due to the pandemic, Videocon Industries attracted little interest from marquee names, and banks were even considering sending the company to liquidation, which would have meant selling assets to recover their dues.
Interestingly, just when the Reserve Bank order came in 2017, which sent over 40 companies to the NCLT, Videocon had almost finalised a debt resolution proposal made by SBI Caps, a subsidiary of the firm’s lead bank, State Bank of India.
According to that debt resolution proposal, the banks were to be able to recover up to ~27,500 crore dues (as of November 2017). The proposal was accepted by the Joint Lender’s Forum in November 2017 after the forensic auditors said there was no fund diversion by the group and gave a clean chit to the company.
The SBI Caps plan divided Videocon Industries’ loans into two parts: Coupon bearing for ~15,000 crore (55 per cent of the principal amount), and non-coupon bearing of ~12,257 crore. Besides, ~4,032 crore of unpaid interest was also to be serviced as noncoupon bearing instrument.
Along with the long-term resolution plan, the group also proposed to restructure its business by splitting the company into three verticals — consumer electronics (Newco), the residual business of Videocon Industries (oil and gas), and the affordable housing segment.
According to the SBI Caps plan, the entire demerger exercise was to get over by March 2019. Even before the joint lender's forum was to meet on the proposal, the RBI sent the company for debt resolution under IBC in December 2017. According to the earlier plan, of the ~15,000-crore interest bearing loan, Newco (holding consumer durable business) was to takeover ~10,000 crore of debt. Around ~1,500 crore of debt was to be paid by selling real estate. The affordable housing project company was to carry the rest of the debt. On the non-interest bearing debt, Newco was to hold ~7,500 crore debt as preference shares. Surplus was to be paid to the banks from the oil and gas business. Part of the loan repayment was to start by 2035.
Indian banks, which made a massive ~59,500-crore claim against the company are turning out to be the biggest losers with no solution in sight even after the company has been in NCLT for over three years. Of this, ~57,443 crore of claims were admitted as on November 2018.