Insolvency Proceedings against Binani Cement Ltd - Interesting Bits

In a notification to the Bombay Stock Exchange, Binani Industries Limited (BIL) has said that it has filed an application under Section 60(5) of the Insolvency and Bankruptcy Code 2016 read with Rule 11 of the National Company Law Tribunal Rules, 2016 seeking permission to fully participate in the Insolvency Resolution Process of the Corporate Debtor viz. Binani Cement Limited (BCL) a subsidiary of BIL.

Source: Application submitted by Binani Industries Ltd to NCLT



The company had mentioned in the application that, this is to ensure that the resolution process adequately protects and preserves the rights and interests of the Corporate Debtor, all its stakeholders including the Applicant. The application was filed with National Company Law Tribunal Kolkatta Bench, Kolkatta.

There are lots of intersting information in the application which has been drafted from the above link and given below. This clearly shows how the CIRP is being done against the existing promoters. Of course, the existing promoters have committed mistakes and are liable for the mess created in other companies like this. But, this looks like a different story.

How BCL's case is different?

In its application, BIL has said that the case of BCL is different unlike most other companies that are undergoing the Corporate Insolvency Resolution Process (CIRP) where the value of the business and assets is insufficient to discharge the secured financial creditors, leave aside unsecured financial creditors, workmen and employees, statutory dues etc, consequently the CIRP does not in any manner affect the equity shareholders whose interest is effectively zero or Nil. In the case of BCL, there is a reason to believe that even after discharing all liabilities to all other stakeholders there would be a significant residue of value which belongs to and which would accrue to BIL and its more than 40000 shareholders as also the nearly 12000 public shareholders of BCL. The company has also said that non-inclusion of BIL, who is the single largest shareholder of BCL holding more than 98% of its share capital, in the insolvency resolution process is unfair, arbitrary, against the basic tenets of natural justice, and in any event, contrary to the code, and the objective of the corporate insolvency resolution process envisaged under the code.

Bank of Baroda is one of the financial creditors of BCL, who has initiatied the company petition bearing no. 359 of 2017.

Assets of Binani Cement Ltd (BCL)

BCL owns and operates 6.25 MTPA (Million Tons Per Annum) cement manufacturing capacity in India and its subsidiaries owns and operates 3 MTPA clinker manufacturing capacity in China, and 2 MTPA cement grinding facility in Dubai, besides holding other assets and investments. The plant in India has been operating at optimum capacity since commencement.

What necessitated this CIRP proceeding?

BIL says that the present proceedings were initiated after the short-term financial problems faced by the company. The financial problem was did not occur due to operational or business issues, but due to an unexpected and huge tax liability imposed on BCL based on a judgment passed by the Supreme Court on February 19, 2014. The supreme court through its judgment reduced after about 16 to 17 years the sales tax exemption obtained by BCL under a State government incentive scheme to 25% for 7 years resulting in a demand of Rs. 167 crores exclusive of interest of Rs. 247 crores. This had a cascading effect of huge unexpected tax liability on BCL, freezing of bank accounts by the Rajasthan Sales Tax department, and non-availability of working capital limits.

How things are changing in BCL

BIL states that the financial problems faced by BCL are only of short-term nature, and such problems are expected to be resolved with infusion of requisite working capital facility. This is evident from the fact that with the infusion of Rs. 100 crores of working capital facility, the plant has been operating at about 50% capacity in the last few months. The plant made an EBITDA of Rs. 22 crore in the quarter ended December 2017 at a capacity utilization of 29%.



What is the value of BCL?

BIL states that the value of BCL's overall assets, both tangible and intangible is much higher than its overall liabilities. The cement plants have adequate limestone reserves for the next few decades as also for further expansion, and have the state of the art facility with all infrastructural facilities built in. The replacement cost of the Indian plant based on valuation done by ITCOT (JLF appointed valuer) in December 2015 is Rs. 17294 crore (including mines value of Rs. 11729 crore).

Cost of setting up a new plant

The replacement cost of other cement plants not in possession of mines and mining rights of the type available with BCL is about US$ 130/T in India. This translates to Rs. 5200 crore for the manufacturing capacity of 6.25 million tonnes in India. BCL's plant is an integrated unit with 70MW of thermal power plant, township, railway siding and other infrastructure facilities in place. The plant has the potential to double the capacity at about only 29% of the cost of a new green field facility. These intangible advantages gives significant value to BCL. Based on an equity valuation done by M/s. Kanu Doshi & Associates in March 2017, the value of equity is Rs. 183 per share, and even that does not capture the real value as particularly, the value attributable to intangibles is not considered.

BIL's greivance

BIL, as the shareholder of BCL has not received any documents relating to the CIRP. The company was also never allowed to participate in to provide its comments / recommendations in respect of the CIRP.

The financial creditors have time and again and in particular, after BIL has drawn attention to the significant value and potential of BCL increased their claim from Rs. 3798 crores which was also over pitched to Rs. 4048 crores so as to enjoy unjustified and undeserved benefit and the Resolution Professional has, as a part of his overall failure to perform his duty agreed to such claims.

The liquidation value of BCL arrived at by the valuer appointed by the Resolution Professional is approximately Rs. 2300 crores, whereas the valuation reports prepared by independent parties provided that the replacement cost of the Indian Plant alone is Rs. 17294 crore (including mines value of Rs. 11729 crore).

What is being offered for BCL

As per media reports, the bidders have valued parts of BCL at values ranging from Rs. 4500 crore to Rs. 6000 crore, whereas the mining rights of BCL alone is worth nearly Rs. 11000 crore.

What does BIL want?

In conclusion, BIL says the valuation offered for the assets of BCL is very less and it wants the resolution professional to take care of all the stakeholders including shareholders of BCL and indirectly the shareholders of BIL. It also wants to be part of the meetings that are being conducted as part of the CIRP and evaluating bids. Let's see what does NCLT comes back with.

Shares of BINANI INDUSTRIES LTD. was last trading in BSE at Rs.110.5 as compared to the previous close of Rs. 106.7. The total number of shares traded during the day was 62568 in over 656 trades.

The stock hit an intraday high of Rs. 112 and intraday low of 105.5. The net turnover during the day was Rs. 6891501.

Source : Equity Bulls

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