5 September 2019: In a rare insolvency and bankruptcy case (IBC), a Bench of the National Company Law Tribunal (NCLT) has approved a plan giving the unsecured financial creditor his entire claim while handing the secured lenders only 32.84 per cent of their claimed amount.
A recent order passed by the Ahmedabad Bench of the NCLT in case of the insolvent entity — Korba West Power — approved the resolution plan of Adani Power, which is also an unsecured creditor to the stressed company. Business Standard has reviewed the order copy.
Secured financial creditors have received Rs 1,100 crore, against their total admitted claim of Rs 3,346 crore, as mentioned in the NCLT order. The unsecured lenders have been provided 100 per cent of their Rs 1,685 crore claim under the approved plan, said the NCLT order.
According to a person close to the development, ‘no period of payment’ for the unsecured creditor has been specified in the plan. “This amount cannot be paid to the unsecured creditor without the permission of banks,” he said.
Queries sent to Adani Power and Axis Bank remained unanswered till the time of going to press.
The distribution of amount offered by Adani Power has surprised many IBC experts with secured lenders drawing a much smaller share of the pie, compared to unsecured creditors. The change in the usual pecking order comes at a time when the government has amended the IBC to stress that secured lenders be given priority over unsecured and operational creditors.
“There is no definition in the law for ‘fair distribution of amount.’ Every IBC scheme can have its own dynamics. The committee of creditors (CoC) has the right to use its commercial wisdom to take the final call,” said Manoj Kumar, partner, Corporate Professionals.
Adani Power held the maximum voting share of 37.3 per cent in the CoC, while the lead banker — Axis Bank — has 6.9 per cent share. The resolution plan of Adani Power was approved, with 69 per cent voting share in the CoC and a letter of intent issued to the company on April 6, 2019.
The total claims against the Korba West Power are around Rs 5,000 crore from 19 financial creditors. Claims of Rs 111 crore were admitted from 197 operational creditors. The total bid amount for Adani Power is not known. However, the liquidation value was around Rs 1,454 crore. The NCLT Bench in its order said: “In view of the fact that the resolution plan has been approved by a majority of 68.47 per cent of the financial creditors, this adjudicating authority has no reason to question the commercial wisdom of the CoC.”
Korba Power had received three resolution plans, including from Worlds Window Impex India and Lakshdeep Investments and Finance, who were both out of the race.
Adani Power, according to its resolution plan, agreed to make upfront cash payment of Rs 100 crore to the secured financial creditors on a pro rata basis and also a fund infusion of up to Rs 594 crore to meet the capital expenditure requirements of Korba West. The company has also proposed to make an additional capital expenditure of up to Rs 480 crore towards compliance with environmental and other norms.
Adani has been eyeing this asset since 2017, before it was tagged a non-performing asset (NPA) by the lenders. Adani Power had paid Rs 800 crore towards purchase of 100 per cent shares of Korba West from its original promoters. It also gave loan of Rs 1,600 crore as inter-corporate deposit till March 31, 2018.
Based on an understanding by stakeholders, Adani Power acquired 49 per cent share in the company, while balance was held by the lenders, thereby making Korba West an associate company of Adani Power. Adani Power sold 49 per cent of shares to a third party for Rs 270 crore in December 2018.
The deal to take over 100 per cent stake purchase could not be concluded due to operational issues at the plant and pending resolution of the NPA status. “Our intention is to obtain this restructuring approval from 100 per cent lenders, and then make the company a part of Adani Group once this NPA tag is removed,” it had said in a concall.
Korba power project in Raigarh is close to the Parsa Kente mines being operated by Adani Mining and owned by Rajasthan. The Korba power plant however, has issues of obtaining power sale contracts. It was only 5 per cent of the generation to the host state Chhattisgarh.