Lenders to debt-laden Jaiprakash Associates Ltd. are working on a resolution plan for the company, which would save them a trip to the insolvency courts.
According to three people in the know, the consortium of lenders, led by ICICI Bank Ltd., is seeking to resolve the company's debt under the June 2019 stressed asset framework of the Reserve Bank of India. The plan involves bringing in a global distressed fund to provide a mix of debt and equity funding for JP Associates. The lenders are currently in talks with investors like Hong Kong-based SSG Capital Management and U.S.-based Tilden Park Capital Management, the people cited earlier said.
The investment would lead to the investor holding a large minority stake in the company, with the Gaur family continuing to hold control. The firm would be run under the fund's supervision, the people cited earlier said.
ICICI Bank, JP Associates, SSG Capital and Tilden Park didn't respond to queries mailed on Monday.
Lenders are looking to have at least Rs 2,000 crore in debt repaid under the agreement with about Rs 500-1,000 crore in equity to be infused in JP Associates. The plan is under discussions, the people cited earlier said.
According to the company's annual report for the year ended March 2019, JP Associates had a cumulative debt of Rs 21,544 crore. According to the people cited earlier, the total bank debt stands at around Rs 15,000 crore.
Jaypee Group's Tryst With Bad Debt
The Jaypee Group and its flagship company JP Associates have been facing the consequences of high leverage and a weak business environment for many years now. According to the first of the three people cited earlier, a public sector banker, JP Associates was one of the 50 companies the RBI had shortlisted for a bank-wide asset quality review in October 2015.
Leading banks such as ICICI Bank and State Bank of India, with loan exposures to the company were found to have provided for it inadequately, despite continued stress. As part of the review, the regulator forced lenders to make higher provision against such companies. Later, in June 2017, the RBI had created a list of 12 companies and directed banks to initiate insolvency proceedings. This list included Jaypee Infratech Ltd., a large subsidiary of JP Associates.
By August 2017, the RBI had created a second list of such accounts, which included JP Associates. The accounts in the second list were given time till December 2017 for resolution, failing which, they too would face insolvency. While lenders didn't manage to finalise a restructuring plan for the company within the time period allotted to them, they continued to drag their feet before filing insolvency petitions.
Burdened with a failed restructuring scheme and some amount of pressure by the RBI, ICICI Bank decided to file the insolvency petition against the company in September 2018. Progress on the insolvency petition has been slow. So far, the Allahabad bench of the National Company Law Tribunal hasn't admitted Jaiprakash Associates under insolvency, nor has it appointed a resolution professional to take over the board.
According to the second person cited earlier, the lenders to JP Associates have approached the RBI separately to allow a resolution scheme to be implemented outside the IBC. After receiving a positive response from the regulator, the lenders proceeded with negotiations on a possible resolution plan.
An email sent to the RBI on Monday wasn't answered.
For the quarter ended March, JP Associates reported a net loss of Rs 307 crore, compared with a loss of Rs 305 crore a year ago. The company's total income fell to Rs 1,155 crore in the fourth quarter, compared with Rs 1,838 crore reported in March 2019.
Jaypee Group's flagship is the holding company for subsidiaries with interests in engineering and construction, cement, power, real estate, hospitality and healthcare. The group has been forced to give up ownership of many of its subsidiaries in the last few years, to pare its outstanding debt.
In July 2017, UltraTech Cement Ltd. purchased a bulk of cement assets owned by JP Associates as part of a debt reduction plan. Jaypee Infratech, which is still under insolvency, is to be sold to NBCC India Ltd. after a bidding process was completed earlier this year. In January, JSW Energy Ltd. bought 5.5% stake in Jaiprakash Power Ventures in exchange for repaying the company's debt to Axis Bank Ltd.
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