Surprising that Vedanta group’s bid is so close to liquidation value, NCLT

Thirteen companies of the Videocon group with presence in oil and gas, consumer electronics, home appliances, telecom, real estate now belong to Twin Star Technologies Ltd., a promoter entity of Vedanta Resources group founded by Anil Agarwal. The Mumbai bench of the NCLT approved Twin Star’s resolution plan in early June but its written order, uploaded now, expresses surprise at the value accepted by the committee of creditors.

In the order, the National Company Law Tribunal has noted that the registered valuers had arrived at a fair value of Rs 4,069 crore for the 13 companies. And a liquidation value of Rs 2,568 crore.

The consolidated resolution amount for the 13 companies offered by Twin Star stands at Rs 2,962 crore against the total admitted claims of Rs 64,938 crore. That comes to 4.89% recovery for secured financial creditors.The tribunal expressed surprise at the fact that Twin Star’s bid was so close to the liquidation value, which is meant to be confidential.

“Surprisingly the resolution applicant also valued all the assets and liabilities of all the 13 companies and arrived at almost the same value of the registered valuers.” – NCLT Order

As per corporate insolvency resolution process regulations, the liquidation value and fair market value is kept confidential and shared with the CoC members only at the time of finalising the resolution plan.
“…even in the present case the resolution bids are opened in the 15th CoC meeting held on 02.09.2020 wherein liquidation value and fair market value was informed to the members of CoC.”

In light of these facts, a doubt arises as to whether the confidentiality clause was adhered to in this case, the tribunal noted. “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.”

Twin Star is a wholly owned subsidiary of U.K.-based Volcan Investments Ltd. Volcan is a parent company of India’s listed commodities major Vedanta Ltd. and owns other interests of the Vedanta Resources group founded by Anil Agarwal.

Resolution plan: Who gets how much
The plan, as approved, will see the following payouts:

• Upfront cash payment of Rs 200 crore to financial creditors.
• Non-convertible debentures of Rs 2,700 crore to financial creditors, carrying a coupon of 6.65% per annum.
• Post implementation of the resolution plan, the assenting financial creditors will receive 8% of equity holding in the new entity, on a post money fully diluted basis.
• Workmen and employees will get approximately Rs 52 crore as upfront cash payment from the funds infused by the resolution applicant
• Operational creditors will get Rs 10 crore as upfront cash payment from the funds infused by the resolution applicant. The amount will be distributed proportionately between operational and statutory dues.

“As per the CoC approved resolution plan, assenting secured financial creditors would get only 4.89%, dissenting secured financial creditors would get only 4.56%, assenting unsecured financial creditors would get only very meagre amount of 0.62%, dissenting unsecured financial creditors would get “nil/zero” amount and operational creditors would also get a very meagre amount of only 0.72%. – NCLT Order

The bench has requested both the CoC and Twin Star to consider increasing the payout to operational creditors, which are largely medium and small sized enterprises. “They may themselves therefore be subject to insolvency proceedings in the future.”

Way forward
As part of the implementation of the resolution plan:

• Shares of Videocon Industries Ltd. and Value Industries Ltd. will be delisted from the stock exchanges.
• Financial creditors to hold 8% equity in Videocon Industries against their admitted debt.
• 11 Videocon Group companies — Applicomp, CE India, Century Appliances, Electroworld Digital Solutions, Evans Fraser & Co, Millennium Appliances, PE Electronics, SKY Appliances, Techno Electronics, Techno Kart, Value Industries — will be merged into Videocon Industries Ltd.
• Financial creditors to hold in trust the investment of Videocon Industries and Videocon Telecom Ltd. in its subsidiary companies, associate companies and joint venture business.
• Infusion of funds by Videocon Industries into Videocon Telecom. VIL will hold 100% share capital of the telecom entity.

Bloomberg