The National Company Law Tribunal (NCLT) has approved the sale of the Chenani Nashri Tunnelway (CNTL) to Cube Highways for ₹6,000 crore. This transaction represents the largest asset sale under the resolution process of the Infrastructure Leasing & Financial Services (IL&FS) Group. The deal aims to address an additional ₹2,500 crore of debt, contributing to the ongoing financial recovery efforts of IL&FS.
Background of IL&FS and Its Financial Crisis
IL&FS faced a severe liquidity crisis beginning in 2018. This led to a series of defaults and a subsequent restructuring process. The company’s debt reached alarming levels, impacting various stakeholders, including lenders and investors. The NCLT was involved to facilitate the resolution of the financial mess.
Details of the Sale
Cube Highways will acquire a 100% stake in CNTL for ₹6,000 crore. The payment structure includes a base bid of ₹5,300 crore, with an additional ₹400 crore for external creditors and adjustments based on the completion timeline. This transaction is crucial as it helps reduce IL&FS’s total debt from ₹43,000 crore to ₹45,500 crore.
Valuation and Bidding Process
An independent valuation in 2021 estimated CNTL’s worth at ₹5,257 crore. This figure was later revised to a range of ₹5,000 crore to ₹6,400 crore in September 2023. Cube Highways initially bid ₹3,907 crore in December 2020 and revised its offer after multiple bidding rounds, finally securing over 98% approval from creditors in March 2024.
Impact on Creditors
The successful sale is expected to benefit secured lenders . Major banks, such as the State Bank of India, Canara Bank, and Deutsche Bank, which hold over 50% of CNTL’s claims, may recover up to 115% of their exposure. This is a notable outcome in the context of the financial turmoil surrounding IL&FS.
Next Steps in the Sale Process
Following the NCLT approval, the next phase involves executing the share purchase agreement. This is contingent on obtaining final clearance from the National Highways Authority of India (NHAI). The completion of this sale is anticipated within the next few months.
Ongoing Debt Resolution Efforts
IL&FS has initiated interim distributions amounting to ₹5,000 crore. This includes ₹3,500 crore in infrastructure investment trust (InvIT) units and ₹1,500 crore in cash. The InvIT units belong to Roadstar Infra Investment Trust, which manages several key road assets valued collectively at ₹8,576 crore.
Questions for UPSC:
- Examine the impact of the IL&FS crisis on the Indian financial sector.
- Critically discuss the role of the National Company Law Tribunal in corporate debt resolution.
- What are the implications of asset monetisation for creditors in insolvency cases? Discuss with examples.
- Analyse the importance of independent valuations in corporate acquisitions and their impact on bidding strategies.
Answer Hints:
1. Examine the impact of the IL&FS crisis on the Indian financial sector.
- IL&FS’s liquidity crisis led to a domino effect, causing defaults across various sectors.
- It raised concerns about the stability of non-banking financial companies (NBFCs) and shadow banking.
- The crisis prompted regulatory scrutiny, leading to reforms in governance and risk management in financial institutions.
- Investor confidence was shaken, resulting in a tightening of credit availability in the market.
- The crisis brought into light the need for better risk assessment and transparency in corporate financing.
2. Critically discuss the role of the National Company Law Tribunal in corporate debt resolution.
- NCLT serves as a judicial body to adjudicate insolvency and bankruptcy cases, ensuring a structured resolution process.
- It facilitates negotiations between creditors and debtors, aiming for fair recovery outcomes.
- NCLT’s decisions can expedite asset sales, as seen in the IL&FS case, to address outstanding debts effectively.
- The tribunal has the authority to approve restructuring plans and oversee compliance with legal frameworks.
- Criticism includes concerns over delays and the need for more efficient case handling to prevent prolonged uncertainty.
3. What are the implications of asset monetisation for creditors in insolvency cases? Discuss with examples.
- Asset monetisation allows creditors to recover a portion of their investments through the sale of distressed assets.
- In the IL&FS case, monetisation helped creditors recover up to 115% of their exposure, demonstrating a positive outcome.
- This process can lead to improved liquidity for creditors, aiding in their financial stability post-resolution.
- However, reliance on asset sales can be risky if assets are undervalued or market conditions are unfavorable.
- Successful monetisation can enhance the overall recovery rate in insolvency proceedings, benefiting all stakeholders involved.
4. Analyse the importance of independent valuations in corporate acquisitions and their impact on bidding strategies.
- Independent valuations provide an objective assessment of an asset’s worth, guiding bidding strategies and decisions.
- In the IL&FS case, valuation adjustments influenced Cube Highways’ bidding approach, reflecting market expectations.
- Accurate valuations can prevent overbidding and financial losses, ensuring strategic investments align with asset potential.
- They enhance transparency and trust among stakeholders, particularly in competitive bidding environments.
- Valuations also assist in negotiating terms and conditions, impacting the overall success of the acquisition process.
