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Explained: Why NCLT thinks Vedanta is getting Videocon for ‘almost nothing’

The Mumbai bench of the NCLT has raised questions about Vedanta group company Twin Star Technologies' Rs 2,962 crore bid for 13 Videocon group companies, noting that the applicant was paying "almost nothing".

Written by Karunjit Singh , George Mathew , Edited by Explained Desk | Mumbai, New Delhi |
Updated: June 21, 2021 11:59:56 am
Videocon Industries is set to come under the fold of Anil Agarwal's Vedanta Group (File photo)

Videocon Industries is set to come under the fold of Anil Agarwal’s Vedanta Group, with banks taking a substantial haircut of 95.85 per cent from their total claims in the resolution plan approved by the banks and cleared by National Company Law Tribunal (NCLT). But the Mumbai bench of the NCLT has raised questions about Vedanta group company Twin Star Technologies’ Rs 2,962 crore bid for 13 Videocon group companies, noting that the applicant was paying “almost nothing”. The resolution of the 13 companies of the Videocon group is the first group insolvency resolution completed under the Insolvency and Bankruptcy Code (IBC).

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How much will lenders get as per the resolution plan?

As per the resolution plan approved by the Committee of Creditors, assenting secured financial creditors would get only 4.89 per cent, dissenting secured financial creditors would get only 4.56 per cent, assenting unsecured financial creditors would get only very meagre amount of 0.62 per cent, dissenting unsecured financial creditors would get “nil” amount and operational creditors would also get a very meagre amount of only 0.72 per cent.

“Out of total claim amount of Rs 71,433.75 crore, claims admitted are for Rs 64,838.63 crore and the plan is approved for an amount of only Rs 2,962.02 crore which is only 4.15 per cent of the total outstanding claim amount and the total haircut to all the creditors is 95.85 per cent,” NCLT said in its order.

In short, banks won’t get back Rs 68,471.73 crore that they claimed under the plan.

NCLT says the successful resolution applicant (Twin Star Technologies) “is paying almost nothing and 99.28 per cent hair cut is provided for operational creditors (hair cut or tonsure or total shave)”.

MSMEs to take hit

According to the NCLT, during the course of hearing, it was submitted that voluminous number of operational credit are also MSMEs and if they are paid only 0.72 per cent of their admitted claim amount, in the near future, many of these operational creditors may have to face insolvency proceedings which may be inevitable. NCLT requested both CoC and Twin Star to increase the pay-out amount to these operational creditors, especially MSMEs, as this is the first group consolidation resolution plan of 13 companies having a large number of MSMEs.

How will Twin Star take control?

Twin Star Technologies is an Indian entity, 100 per cent held by Twin Star Overseas Ltd, which is the investment arm for technology investments for the Volcan group of the Anil Agarwal group of companies. NCLT says by just paying Rs 262 crore (8.84 per cent of total plan value) — cash balance available with the corporate debtors is around Rs 200 crore — Twin Star will get possession of all the 13 corporate debtors to run these units and the first payment of Rs 200 crore as part redemption amount of NCDs will be paid within 25 months from the closing date and the balance amount of Rs 625 crore each is spread over four instalments starting from third year onwards up to sixth year from the closing date and the interest rate for the NCDs is also a nominal of only 6.65 per cent payable annually.

NCLT doubts confidentiality clause

The liquidation value of the corporate debtor is Rs 2,568.13 crore which is very close to the amount approved by the lenders. As per the CIRP Regulations, the liquidation value and fair market value is kept as confidential and informed to the lenders panel members only at the time of finalising the resolution plan. Even in the present case, the resolution bids were opened in the 15th CoC meeting held on September 2, 2020.

“Even if the confidentiality clause is in existence, in view of the facts and circumstances, a doubt arises on the confidentiality clause being in real time use. Therefore, we request IBBI to examine this issue in depth so as to ensure the confidentiality clause is followed unscrupulously, without any compromise in letter and spirit by all the concerned parties, entities connected in the CIRP,” NCLT said.

Manoj Kumar, partner at law firm Corporate Professionals, said: “Initially under the IBC, valuations were disclosed to resolution applicants but later it was decided that these would be kept confidential as in most cases the bids that were submitted were close to the liquidation value.”

No compensation for shareholders

The equity shares of Videocon will stand delisted from the BSE and the NSE in accordance with the order of the NCLT. It is estimated that the liquidation values of VIL and VAIL (Value Industries Ltd) are not sufficient to cover debt of the financial creditors of VIL and VAIL respectively in full. Therefore, the liquidation value due to the equity shareholders of VIL and VAIL is nil and hence, they will not be entitled to receive any payment and no offer will be made to any shareholder of VIL or VAIL.

No amount is being offered to the lenders for any equity shareheld or proposed to be held by them in VIL and VAIL.

Big loss for banks in resolution plans

According to rough estimates, banks have suffered a haircut of Rs 2.97 lakh crore in insolvency resolution plans of 12 big corporates. While the total loan amount involved is Rs 4.47 lakh crore, the settlement amount is Rs 1.62 lakh crore. Apart from Videocon, other major losses for lenders include ABG Shipyard (95 per cent or Rs 20,800 crore), Lanco Infra (88 per cent or Rs 41,700 crore) and Alok Industries (83 per cent or Rs 25,148 crore). However, banks were using Sarfaesi Act to seize the assets and recover loans from home loan customers and small units.

How will this impact any appeal against the NCLT order?

Experts noted that while the observations by the NCLT on the resolution plan and recoveries for operational creditors were not binding as it had approved the bid, they could provide ammunition to any dissenting creditors or promoters in appeals against the approval.

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