KSK lenders' plan for Rs 30,000 crore debt resolution hit NCLT hurdle, banks move appellate tribunal

Lenders headed by Punjab National Bank (PNB) have challenged the NCLT order in the National Company Law Appellate Tribunal (NCLAT).

The plan of a clutch of lenders to Hyderabad-based KSK Energy Ventures group to club group loans worth Rs 30,000 crore for quicker resolution under insolvency mechanism, has hit a major hurdle with National Company Law Tribunal (NCLT) ruling against the plan. The order has now been challenged by the lenders in the appellate tribunal.

The consortium of lenders to KSK Mahanadi is led by Power Finance Corporation, while the lead bank in the KSK Water consortium is PNB. Financial creditors to KSK Mahanadi have filed claims worth Rs 30,354.50 crore, of which the resolution professional for the company has approved Rs 29,197.50 crore. The four financial creditors to KSK Water claimed Rs 938.39 crore, of which claims worth Rs 878.65 crore was approved.

In an order dated February 12, 2021, the Hyderabad bench of the NCLT turned down PNB’s petition to consolidate the resolution process of KSK Mahanadi with those of KSK Water and Raigarh Champa Rail citing lack of clarity on the proposal.

Ruling against the plan, the bench observed in the order that “the concept of Group Insolvency is unknown to I&B (Insolvency & Bankruptcy) Code, 2016.”

Following this, lenders headed by Punjab National Bank (PNB) have challenged the NCLT order in the National Company Law Appellate Tribunal (NCLAT). The hearing is on in this case. The NCLAT verdict will be crucial in this case.

"In the eyes of the law, each entity is treated as a separate unit. But if all three companies are undergoing CIRP (corporate insolvency resolution process), it is likely that the court will consider the request because it makes sense, and also saves time and costs, as all three will come under the same resolution professional," said Sonam Chandwani, managing partner, KS Legal & Associates.

The three entities which together owe around Rs 30,000 crore to the lenders are KSK Mahanadi Power Company, KSK Water Infrastructures and Raigarh Champa Rail Infrastructure.

KSK debt woes

KSK Energy is a company engaged in power production and distribution. Lenders decided to consolidate over Rs 30,000 crore loans of group companies in a desperate bid for quicker resolution under the insolvency mechanism, two bank officials told Moneycontrol on 15 June. One of the people Moneycontrol spoke to said that the current plan for the three KSK Energy assets was inspired by the successful resolution of 13 Videocon Group entities.

“For bankers, a positive learning from the Videocon case was that interconnected companies are more likely to be resolved when they are clubbed together. You are seeing that learning being applied in the case of the KSK assets,” the banker said.

Last week, the Mumbai bench of the NCLT approved Vedanta Group firm Twin Star Technologies’ bid to acquire 13 entities of the Videocon Group. The resolution of the Rs 62,000-crore debt exposure was the first instance of a successful group insolvency case in India, according to Deloitte, the advisory firm to the resolution professional for Videocon.

Another executive with one of KSK Mahanadi’s financial creditors said that the three companies’ assets are structured such that buying them only makes sense if they are offered together.
“Normally, in a power generation company, the water source and the coal transport facility are present in the same SPV (special purpose vehicle). But in this particular case, they are housed in separate companies,” the banker said.

“As a result, looking for three separate buyers may not be a practical solution in this case. Why will anyone buy a power plant if there is no water or coal supply available?” the official added.

Emails sent to Sumit Binani, resolution professional for KSK Mahanadi and Raigarh Champa Rail, as well as V Venkatachalam, resolution professional for KSK Water, seeking their comments for this story remained unanswered till the time of publication. Emails sent to lenders remained unanswered till the time of filing the story.

The resolution process of KSK Mahanadi ran into difficulties after four bidders -- the Adani Group, the Tata Group, Brookfield and Jindal Steel and Power –pulled out their bids earlier this year, reported The Economic Times. All bidders reportedly wanted the clubbing of the water and railroad assets to be clubbed with the power project.

How did KSK Group face a financial crisis?

KSK Mahanadi was promoted by KSK Energy Ventures to develop a 3600 megawatt domestic coal-based power project at Nariyara village, Janjgir-Champa district of Chhattisgarh. According to a rating note published by ICRA in October 2020, the project cost was revised to Rs 27,080 crore from the initial appraised cost of Rs 16,190 crore.

The project cost including the cost of ancillary infrastructure such as the water intake system and railway siding stood at Rs 28,430 crore. Another report by the rating agency attributed KSK Mahanadi's failure to meet its debt obligations to delays in implementation of the project. These delays were caused by execution related challenges, agitation by locals and subsequently, due to delays in securing funding for cost overruns.

In November 2020, NCLT Hyderabad ordered the liquidation of the parent company KSK Energy Ventures.