Winding-up pleas against Bharati Shipyard queer the pitch for other lenders

By: and |
Mumbai | Updated: March 12, 2015 5:18:18 AM

With a clutch of creditors including Life Insurance Corporation (LIC), Shipping Corporation of India and IDBI Capital Market...

Life Insurance Corporation, LIC, Shipping Corporation of India, IDBI Capital Market, Bharati Shipyard, Bombay High Court, State Bank of India, SBI, Edelweiss ARCBharati Shipyard reported losses of Rs 879.36 crore in FY14 and Rs 491.91 crore in FY13.

With a clutch of creditors including Life Insurance Corporation (LIC), Shipping Corporation of India and IDBI Capital Market all having filed winding-up petitions against Bharati Shipyard in the Bombay High Court, other lenders looking to recover their dues may find it harder to do so.

Last year a consortium of lenders led by State Bank of India (SBI) sold 60% of its total exposure of Rs 5,800 crore to Edelweiss ARC (asset reconstruction company); 11 out of 23 banks had sold loans amounting to Rs 3,480 crore. Punjab National Bank (PNB) is believed to be in the process of offloading its exposure to an ARC.

Bharati Shipyard reported losses of R879.36 crore in FY14 and R491.91 crore in FY13. The account was referred to the corporate debt restructuring cell in December 2011 and lenders agreed to recast the company’s loans of R5,800 crore in April 2012, offering a moratorium on interest for 18 months and a reduced interest rate of 11%. However, the company remains in the red; net losses in Q3 FY15 were R98.8 crore on revenues of R2 crore.

Life Insurance Corporation, LIC, Shipping Corporation of India, IDBI Capital Market, Bharati Shipyard, Bombay High Court, State Bank of India, SBI, Edelweiss ARC

Among the petitioners, LIC appears to have the largest outstandings at Rs 70 crore, sources told FE. Other petitioners who have filed separate suits in the Bombay HC are Shipping Corporation of India, Super Tug Offshore Services, ABC Infra Equipment and G1 Offshore & Marine. At least in one case — Darshan Roadlines — the winding-up petition was disposed of after the company signed a settlement agreement with the petitioners, according to an order dated March 2, 2015.

A senior executive at a leading public sector bank pointed out that once a court orders a company to be wound up, banks find it virtually impossible to recover their loans as the government, which wants to recover taxes and provident fund money (PF), gets priority even over secured lenders.

Although the winding-up petitions are yet to be admitted by the court, bankers are anxious about their money. “We will not be able to redeem the security receipts that we have from the ARCs and may have to eventually write off the asset from our books. SRs (security receipts) become void if a company is wound up as ARCs are not able to recover on behalf of the banks,” the banker explained. An email sent to the company seeking comments remained unanswered. An official at Edelweiss ARC said it is in the process of raising Rs 630 crore from foreign investors to revive the company but added the winding-up petitions could throw a spanner in the works. “It is difficult to recover dues of one set of lenders if some others ask for dissolution,” the official said.

The current guidelines require ARCs to issue security receipts to banks when they buy an asset that are redeemable as and when the ARC recovers money from the firm, which typically could take seven to eight years.

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