Indian Zombie on 6,366-Name Sick List Lost $2 Billion Value

  • REI Agro lives on nearly three years after bond payment missed
  • New bankruptcy code to restructure faster than old BIFR system

A closer look at the sick-list of Indian companies restructuring under a three-decade old state program shows why the nation badly needs its new bankruptcy system.

REI Agro Ltd., once the biggest basmati rice processor in the world and a sponsor of the Delhi Daredevils cricket team, is still alive after losing about $2 billion in market value since a peak in 2008 and defaulting on a bond payment in 2014. The Board for Industrial & Financial Reconstruction’s 6,366-name register -- part of the 1985 Sick Industrial Companies act -- also includes Malwa Cotton Spinning Mills Ltd., which joined 2013 and has since racked up another three years of losses.

Prime Minister Narendra Modi overhauled the bankruptcy system in May, taking a fresh approach to clearing $120 billion of stressed assets at banks and removing a drag on Asia’s third-largest economy. Monthly BIFR hearings this month have involved cases from as long ago as 1993. Among those rehabilitated, Hindustan Wires Ltd. was discharged in July 2015 after 16 years.

“The current BIFR system fails to bring all debt holders around the same table to quickly resolve their disputes,” said Venkat Ramaswamy, executive director and co-Founder of Edelweiss Financial Services, which runs the nation’s biggest bad-loan company. “The bankruptcy code will allow for an extremely transparent process of resolving and restructuring the debt.”

Click here for a story on Indian banks getting stuck owning hard-to-sell assets

Two phone calls to REI Agro’s company secretary went unanswered and there was no reply to three e-mails. No one at Malwa Cotton was immediately available to comment when contacted by phone and there was no reply to an e-mail seeking comment. 

With the new bankruptcy code, various overlapping laws on bad-loan recovery including the Sick Industrial Companies act will lose relevance, said Pooja Dutta, managing partner at Mumbai-based Astute Law. The new law will help in quicker resolution, she said.

The improving outlook for the world’s second most populous nation and progress in overhauling the nation’s bankruptcy procedures is reviving investor confidence.

While the government hasn’t explicitly outlined how the BIFR system will be superseded, Finance Minister Arun Jaitley said in a Facebook post in August that immediate action is required to implement the new bankruptcy code. Three calls to G.V.K. Raju, chairman of Delhi-based BIFR, weren’t answered. R. N. Dubey, a Finance Ministry adviser overseeing the work of the board, didn’t reply to two e-mails seeking comment.

REI Agro’s fortunes turned in the three years before its default as its margins were squeezed, debt and receivables surged and cash ran short. The Kolkata-based company’s convertible bonds sold in November 2009 trade at 2 cents on the dollar.

The firm said in a Sept. 15 report its net worth has been “entirely eroded” and it hasn’t provided for interest on loans. Its case is pending determination of sickness as of Nov. 16, according to the status on the BIFR website.

Stressed assets in India, including bad debt and restructured loans, rose to 12 percent of total loans as of June 30, central-bank data show.

“We are not aware of significant success of revival through the BIFR mechanism,” said Abhishek Dangra, director of corporate ratings in Singapore at S&P Global Ratings. “In some cases, it might be too late to revive these companies.”

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