State Bank of India (SBI) and other lenders have sought approval from the Reserve Bank of India (RBI) to transfer the debt of real estate firm Jaiprakash Associates (JAL) to the National Asset Reconstruction Company of India (NARCL). According to sources cited by the Economic Times, the lenders have requested the transfer of Rs 18,000 crore debt to NARCL.
This move would mark the largest acquisition of debt from a single company by NARCL, with an offer of Rs 10,000 crore to the lenders. The report states that NARCL has made RBI’s approval a condition for acquiring JAL’s loans. JAL is the flagship firm of the Jaypee Group, led by Manoj Gaur, and operates in various sectors including cement, hospitality, real estate, fertilizers, and construction. In the financial year 2022-23, NARCL acquired 62% of Jaypee Infratech’s debt, totaling Rs 9,234 crore, resulting in a 39% recovery for lenders through an uncontested Swiss challenge auction.
Background and Rationale for the Debt Transfer
The lenders are pursuing approval for the debt transfer due to a directive from the RBI in 2017, which instructed banks to refer 28 companies, including JAL, for debt resolution under the Insolvency and Bankruptcy Code (IBC). Although the banks initiated the debt resolution process for JAL by filing an application with the National Company Law Tribunal (NCLT) around the same time, ongoing litigation has prevented the company from being admitted. Therefore, the lenders are seeking proper channels for JAL’s debt resolution, as some of the 28 companies referred by the RBI had sold debt to private asset reconstruction companies without RBI approval.
Complex Structure of JAL and NARCL’s Proposed Acquisition
Jaiprakash Associates’ complex structure, with multiple large businesses operating under one entity, has led lenders to believe that RBI clearance is necessary for NARCL’s acquisition. The lenders aim to avoid potential regulatory issues in this regard. If the debt transfer to NARCL proceeds, the asset reconstruction company will gain control over JAL’s cement division, prime land housing the Buddh International Race Circuit, several luxury hotel properties, and a construction business.
Additional Proceedings and Pending Offers
In addition to seeking approval for the debt transfer, SBI and ICICI Bank have filed petitions with the Allahabad NCLT to admit JAL for debt resolution. Meanwhile, Dalmia Cement (Bharat) has made a binding offer to acquire JAL’s clinker, cement, and power units at an enterprise value of Rs 5,666 crore. The funds from this offer are intended to partially settle the lenders’ debt. However, the deal remains pending as lenders have not issued a no-objection certificate.
NARCL’s Proposed Offer
NARCL’s proposed offer for the debt acquisition includes a 15% cash component and the remainder in securities receipts. This offer consists of a cash portion of Rs 1,500 crore, while the remaining Rs 8,500 crore will be in securities receipts, redeemable upon NARCL’s recovery of the dues.
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