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Investors dump stocks of firms on RBI’s defaulters list on liquidation fears

LiveMint logoLiveMint 20-06-2017 Alekh Archana

Mumbai: Share prices of most of the companies identified by the Reserve Bank of India (RBI) for bankruptcy proceedings have fallen sharply as banks move closer to trying them at National Company Law Tribunal (NCLT).

For instance, Amtek Auto Ltd’s share price has fallen 24% since 13 June, the day RBI said its internal advisory committee had identified 12 accounts representing 25% of the gross bad loans in the banking system. The RBI statement was issued post-market hours. In the same period, Alok Industries Ltd and Bhushan Steel Ltd shed around 18% each. Lanco Infratech, which closed at Rs1.7 per share on Tuesday, declined 39%.

Meanwhile, bankers have swung into action and the lead lenders in the consortium have started organizing meetings with other banks in the so-called joint lenders’ forum to prepare a plan on moving the insolvency application at the NCLT.

Between Saturday and Tuesday, at least four such meetings were conducted, according to two bankers who did not want to be named. Meetings for accounts such as Alok Industries, Bhushan Steel, Bhushan Power & Steel, Jyoti Structures and ABG Shipyard, among others, will be held this week, these bankers said.

In some cases, such as those of Lanco Infratech and Amtek Auto, bankers have hired Cyril Amarchand Mangaldas as the law firm to lead the case, said two other bankers on condition of anonymity.

A spokesperson for Cyril Amarchand Mangaldas declined to comment.

“Banks have a month as per the RBI letter to move NCLT. Discussions have to happen on the documentation process, selection of law firms, and also to identify the current operations of the company. Once this is settled, banks will also look if other parties, such as vendors to the company, also have any unpaid dues,” said one of the bankers cited in the first instance, who attended one such JLF.

The meetings are also focusing on operational issues including whether firms are already under some other resolution process such as corporate debt restructuring. This is the case with Electrosteel Steels Ltd and Lanco Infratech.

“As of now, there is no clarity over whether it is mandatory to exit corporate debt restructuring before NCLT proceedings can go ahead. However, it is logical that bankruptcy will supersede other processes,” said an official with one of the regulators involved in the process who asked not to be identified as he isn’t authorized to speak to the media.

Investors in these listed companies have also been on tenterhooks since equity shareholders are last in line to be compensated in case a firm gets liquidated.

To be sure, liquidation will take place only if there is no resolution plan within the 270-day deadline set under the Insolvency and Bankruptcy Code.

Interestingly, not all stocks have declined. There are outliers such as Jyoti Structures and ABG Shipyard, where prices have risen.

Shares of Jyoti Structures have risen by more than 38% since 13 June.

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Analysts said that in these cases, investors could be possibly betting on a resolution, such as change of management, which will bring in fresh funding, unlike in the case of steel companies, where the entire sector is facing the twin issues of high leverage and pricing pressure. Indeed, that seems to be the reason why some of these stocks pulled back on Tuesday.

“These companies are identified, but how are they going to repay, we have no idea. If they have assets to offload, we don’t know who will be willing to buy it. It remains unclear what happens in case they don’t have adequate assets,” said Dhananjay Sinha, head of research, Emkay Global Financial Services Ltd. “I don’t think the pain is coming off for these companies per se. I don’t see a reason why any company should see an uptick in their stock price until things are resolved,” he added.

Ami Shah contributed to this story.

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