Infrastructure Leasing & Financial Services(IL&FS) proposed a resolution plan to the National Company Law Appellate Tribunal (NCLAT) on Monday that involves splitting group companies into three categories based on solvency and cash flow over the next 12 months, in what could lead to immediate repayments of at least Rs 7,000 crore and possibly more.
The tribunal asked the government and IL&FS to provide a list of group companies that have the ability to meet payment obligations in the next year.
“We cannot allow banks to suffer,” said a two-judge bench led by justice SJ Mukhopadhyaya.
According to the IL&FS resolution framework report accessed by ET, the companies were designated green, amber and red based on their ability to meet payment obligations over 12 months. Those in the green category will be able to meet all payment obligations. The amber ones can meet operational payments and senior secured debt obligations. The red units are unable to meet even senior secured financial credit obligations.
IL&FS group companies have outstanding debt in excess of Rs 91,000 crore. The Mumbai bench of the National Company Law Tribunal (NCLT) superseded the board of IL&FS with a government-nominated one on October 1 last year. The Ministry of Corporate Affairs (MCA) had approached the NCLAT for a 90-day moratorium on loans taken by IL&FS group companies after the Mumbai bench of the NCLT rejected its plea for a moratorium.
The bench suggested that companies in the green category should not be put under a moratorium and that those in the amber category “at least (make) payments to the secured creditors.”
The bench further asked counsel for the government and IL&FS to propose a resolution for companies in the red category, adding, “This is how we intend to go in this matter.”
The board has put 64 companies in the green category. Of these, 22 have been audited and can service interest and principal payments of up to Rs 7,000 crore. These include two road SPVs (North Karnataka Expressway Ltd and Jharkhand Infrastructure Implementation Co. Ltd), seven wind SPVs and six fund managers.
“This is a positive development for senior secured creditors of SPVs where cash flows are there,” said a source close to one of the lenders opposing the moratorium.
The government and IL&FS have agreed to the appointment of retired Supreme Court judge DK Jain as a supervisor for the sale of assets of the debt laden group in response to a suggestion by the NCLAT earlier.
“The resolution plan submitted to NCLAT by the Uday Kotak-led board confirms and assures that the seniority of SPV (special purpose vehicle) project lenders will be maintained during asset monetisation and these project lenders will get utmost priority similar to the waterfall?? under Section 53 of the IBC (Insolvency and Bankruptcy Code),” said a creditor present at the hearing. “This development will bring a lot of reprieve to the project lenders of these SPVs and its stakeholders.”
Under Section 53, senior secured creditors are paid first and any surplus that remains thereafter is given to unsecured or subordinated creditors and thereafter to equity owners.
Source: Economic Times, February 5, 2019