Weekly Round Up – Week 15

It was an interesting week with several development on corporate front such as twists in the merger tale between Lakshmi Vilas Bank (LVB) and Indiabulls Housing finance, Supreme Court’s intervention in Essar Steel insolvency case and developments in Jet Airways’ saga. But most importantly, UK got relief with EU extending the deadline for Brexit by over six months.

In an interesting yet perplexing case, Lakshmi Vilas Bank (LVB) announced its merger with Indiabulls Housing finance ltd late last week. The merger was a necessity for LVB which has recorded losses in FY 18 and first three quarters of FY19 and badly needs capital. Against total assets of Rs over Rs 40,000 crore, its equity capital stood at barely Rs 2,300 crore at the end of FY18 which would have got further eroded by the end of FY19. For Indiabulls, an NBFC which had been denied banking license by RBI some time back, the merger would give it a kind of backdoor entry to banking sector and access to low cost funds. However, RBI’s statement next day that merger announcement doesn’t have its approval added to the uncertainty. While here is nothing wrong in a stressed bank being taken over by another financially strong entity, RBI’s statement and the hurried manner of going ahead with the deal raises some concern. In another announcement today, LVB board approved issue of shares Indiabullls to raise capital. How this fits-in with the merger announcement and whether this implies cancellation of the earlier plan is not quite clear.

The resolution of insolvency case of Essar Steel, running for over eighteen months now, continues to remain elusive with the case reaching the Supreme Court now. The case in Supreme Court has been filed by the lenders against National Company Law Appellate Tribunal’s (NCLAT) order directing them to reconsider distribution between financial and operational creditors. Operational creditors’ share in the amount received through bidding is lower since they are unsecured lenders. The Supreme Court has ordered status quo to be maintained on the distribution and directed NCLAT to expedite hearing of the issue. Essar Steel remains the most high profile insolvency case where lenders are getting maximum recovery due to participation of global entities and resultant fierce competition to get control over the assets. The case had taken an interesting turn when the original promoters, the Ruias, had offered to pay back the entire amount of nearly Rs 54,000 crore against current offer of Rs 42,000 crore made by ArcelorMittal. The offer, however, was turned down by NCLAT.

While Jet Airways’ woes worsened operationally, the process of change of ownership appears to be moving towards resolution. Lenders have received several expression of interest (EOI) to purchase their stake in the company belying apprehension that there may not be any takers. Interested parties now have to submit binding bids by 30th April. While lenders would most likely have to take a haircut on their outstanding dues of close to Rs 8,500, recovery of even 60% would be a win-win situation for all the parties. The challenge, meanwhile, is to keep the airline running until then, as lenders have infused only a part of the promised Rs 1,500 crore in the company. Number of planes being flown by the company has come down to a fraction of the total with 25 additional aircrafts being grounded in last two weeks due to non-payment of dues.

In another hostile bid of sorts, Adani Enterprises was close to purchasing the stake of a foreign partner in Mumbai Airport. While GVK, the promoters, have the first right of refusal, sale to promoters got stuck due to issues related to timing of payment. This prompted the seller to approach other buyers and Adani stepped-in, being opposed fiercely by GVK. Somewhat similar situation occurred a few weeks back when L&T bought stake in Mindtree with the existing promoters opposing the move. For Adani Enterprises which recently won bids to develop five airports, entry into an existing airport would give significant insight on nuances of running this business.

In a major relief to UK, EU extended the deadline for Brexit to 31st Oct’19, more than six months from now. The earlier deadline was to end today and British parliament has not yet approved the deal agreed between the British government and EU. The extension, however, requires UK to hold elections to EU Parliament next month and fulfill its obligations until it officially exits EU. While the condition imposed appears easy, it could turn out to be tricky because of widespread frustration on account of the uncertainty. Still, the bigger issue is, does UK and its Parliament have a Brexit Plan.

(Image courtesy of ddpavumba at FreeDigitalPhotos.net)

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