The Kolkata bench of the NCLT has admitted application for initiating Corporate Insolvency Resolution Process (CIRP) against the country’s largest container glass-maker, Hindusthan National Glass & Industries Ltd (HNG).
The insolvency proceedings were initiated against the debt-ridden company by DBS Bank Ltd, one its financial creditors.
Filings by DBS Bank before the Tribunal state that it had extended external commercial borrowings (ECBs) of up to $20 million and $40 million.
Incidentally, HNG, under a loan restructuring carried out some years back, owes a consortium of 12 banks and lenders led by State Bank of India around ₹1,710 crore. It paid off around ₹290 crore of the dues, and despite two extensions, defaulted on the payments, further filings by DBS Bank reveal.
BusinessLine reached out to Mukul Somany, Vice-Chairman and MD and part of the promoter group of HNG for comments. Calls and messages were unanswered.
The company, however, in a stock market notification said it had been in discussion with the lenders for working out a resolution plan and that it has already paid ₹772 crore till September 30; this includes ₹550.02 crore against outstanding term loan, fund-based working capital, letter of credit and interest thereon plus ₹222 crore against non-fund based facilities.
Appointment of RP
The Bench comprising Justices Rajasekhar VK and Harish Chander Suri, while admitting the petition, has also appointed Girish Sriram Juneja as interim resolution professional “for ascertaining the particulars of creditors and convening of Committee of Creditors for evolving a resolution plan”.
He is also to identify the prospective resolution applicant within 105 days from the insolvency commencement date.
As per provisions of the Insolvency and Bankruptcy Code, 2016, a moratorium has been declared too which prohibits HNG from disposing of or transferring its assets, recovery of property – even by the owners or lessors - if the said property is in possession of the company.
Moreover, the moratorium also prohibits any foreclosure, recovery or enforcement of security deposits created by HNG through the SARFAESI Act.
Poor financials
The Kolkata-based container glass maker had been facing issues of high debt for quite some time now. Its auditors had also been flagging off concerns relating to accumulated losses and eroded net worth.
For the quarter ending June 30, the auditors noted that HNG has accumulated losses and “its net worth has completely eroded”, it has incurred losses during the current period and in the earlier period(s) / year(s), and the current liabilities exceeds its current assets. The company is having a high debt-equity ratio (Debt being ₹2,28,6.41 crore and a negative equity of ₹499 crore as at June 30, 2021. The realizable value of assets is lower than amount payable to secured creditors, earning per share is negative.
“In our opinion, based on the above, the company does not appear to be a going concern,” the auditors had said.
Attempts at resolution
HNG on its part had submitted before the NCLT that it continued to be in distress both commercially and financially for the last few years and could not service its debt obligations. This led to it being categorised as a NPA. However, the company “with bona fide intention” negotiated with the lenders for settlement of the outstanding dues and regularization of loan accounts.
Attempts of resolution included making a payment of cash of ₹1,719 crore and transfer 90 lakh equity shares (of face value ₹2) of HNG in favour of secured creditors. Any non-fund based outstanding at the end of 3 months period to be repaid or covered by 100 per cent margin.
In August 2018, there were discussions with an investor, Lotus One. However, Lotus would not be in a position to invest unless all lenders approved of the resolution plan. With there been delay in signing agreementsa by lenders, the resolution plan could not be implemented, HNG said in its submission to the NCLT. The glass-maker had also negotiated with two other companies – Goldman Sach (India) and SSG Capital Management – who agreed to finance them. Nearly, ₹1,000 crore would be raised from them.
HNG further contended before the tribunal that businesses had taken a “steep nosedive” in FY20 and FY21 and “on account of reduction in demand in the main segment - liquor and beer – which constitute “around 75-80 per cent” of total sales, it has been impacted to a great extent. Since the execution of the memorandum of understanding dated August 27, 2018, HNG paid off a total sum of ₹708.28 crore, it was said.