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RBI Holds Ground, Dead Debt Alert et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Oct 15, 2018 1:21 PM 3 min read
Editorial

Good evening reader,

 

The Supreme Court held last week that the 'statute of limitations' would be applicable on India's two-year-old bankruptcy law.

 

Woah, Wait, what?

 

Before you get overwhelmed by the legalese, allow us to explain. The Insolvency and Bankruptcy Code (IBC) came into effect in December 2016. Its intent was to put in place a time-bound bankruptcy framework for creditors when a company they've invested in goes under. IBC is the reason why so many names i.e. Essar Steel, Bhushan Steel, Monnet Ispat, Alok Industries have lately made the News, either while being acquired or due to restructuring, on way ensuring creditors recover sustainable dues back. 

 

Yes, the original 180 to 270 day deadline is being regularly breached. Cherry picking which differentiates the holy cows from the rest is common.

 

But for the first time in a post-liberalized India, promoters are under the spotlight realizing that once they default, all bets are off!

 

Supreme Court's latest ruling affirms that bad debt can be claimed under IBC only within a three-year window i.e. if a loan advanced in 2018 goes bad; the creditors cannot file a claim under IBC in 2025. The code is hence bound by a 'statute of limitation'. Financial creditors such as banks are not expected to worry. They're usually the ones quick to mobilize resources to file claims. It is the so-called 'operational' creditors, the likes of suppliers to real estate projects going under, who may suffer.

 

Proponents argue the said statute ensures misuse is put to check. Those against say it short-changes operational creditors.

 

The judgement of public opinion is yet to be out.

 

Presenting today's Top 6 Business Stories through our End Of Day Wrap Up:

 

India

 

US companies lobbying for deadline extension for data localization; RBI holds ground.

Today is the last day for payment companies to fulfill the RBI requirement for local storage of data. A closed-door meeting was reportedly conducted between RBI Deputy Governor BP Kanungo and representatives from Visa, MasterCard, Amazon, American Express, who complained of bias and conflict of interest. RBI, however, has not made any announcement regarding extension of the deadline.

 

KKR may acquire road assets of IL&FS Transportation Network Ltd.

US-based private equity firm, KKR is reportedly eyeing road assets of debt-laden IL&FS Transportation Network Ltd. (ITNL) as it looks to build an infrastructure portfolio in India. The PE firm recently raised $7.4bn for its infrastructure fund and is expected to invest over $1bn in India. The company is actively seeking to buy assets from Indian shadow banks/NBFCs to make the most of market disruption after the IL&FS debt-default.

 

YES Bank may select New MD & CEO to replace Rana Kapoor by December 15.

YES Bank might shortlist names of at least 3 candidates who may replace Rana Kapoor as the new Managing Director and Chief Executive Officer by December 15. The new appointee is to take office from February 1st, 2019. YES bank has hired a US-based advisory firm, Korn Ferry, to assist with the selection process. This comes soon after an order issued by RBI, cutting Rana Kapoor’s tenure as the bank’s MD & CEO short.

 

Google’s ‘Shopping' tab to launch in India; in talks with Flipkart, Paytm etc.

Currently functional in 30 countries, the ‘Shopping’ tab will allow customers to directly initiate purchases from the search engine. Google is in talks with Flipkart, Paytm Mall and Snapdeal to join the initiative. This move comes with growing competition from Amazon in product search.

 

US/International

 

L3 Technologies and Harris Corp. merge to create $33.5bn military tech company.

US-based military tech and communications companies, L3 Technologies and Harris Corp, have agreed on an all-stock merger deal. Together, the company will be called L3 Harris Technologies, headquartered in Florida and to be headed by a 12-member Board, with 6 members from each company. This deal is proposed to strengthen the companies’ core franchises and expand into newer markets. The union is the latest M&A deal between government contractors, taking advantage of favourable defence spending and boasts of being the sixth largest US defence company. The deal is expected to close next year, pending a review by the US Defense Department.

 

Sears plans to close 142 stores, files for bankruptcy protection.

Sears Holdings, a 125-old US-based retailer, has filed for Chapter 11 Bankruptcy Protection, while planning to close 142 stores in the country. The retailer has lost more than $11bn since 2011, and has closed more than 700 stores over the last two years.

 

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