IBC process: What happens to foreign assets?

The ongoing insolvency proceedings against Binani Cement will not only determine the sanctity of out-of-court settlements but also test how the Insolvency and Bankruptcy Code (IBC) deals with the foreign assets of companies going through the National Company Law Tribunal (NCLT)-driven process.

According to experts, there is a lack of clarity on the overseas assets of sick companies under the IBC, which could add to the uncertainty once the assets in India are sold.

For instance, the resolution professional (RP) of Binani Cement is not managing the company’s 5.5-million-tonne per annum plants in Dubai and China. The profitable grinding units in these countries, which import clinker from different locations, are not in the operational control of the RP appointed by NCLT. They are still operated by the old management team.

Sameer Kaji, senior advisor, Binani Cement, told BusinessLine the fate of these assets is not certain. “We have to see if the local laws of the countries where these assets are located will have any impact on the ongoing IBC proceedings,” he said.

Binani’s China unit, Shandong Binani Rongan Cement Company, posted revenue of ₹209 crore and a loss of ₹24 crore in FY17 while the one in Dubai registered revenue of ₹106 crore and a profit of ₹14 crore.

There are other defaulting companies under NCLT whose foreign assets may also raise some doubts. Essar Steel has spun off its US operations and filed for Chapter 11 bankruptcy protection in that country. Similarly, the UK-based Liberty House has closed in on Amtek, which has acquired several global auto parts manufacturers and set up a few of its own in the UK and Europe.

Global operations are mostly limited for the first set of 12 large NCLT cases. However, given the spate of bankruptcy cases filed with the NCLT, the uncertainty could kick off a controversy at a later stage.

Possible tax claims

UltraTech Cement and a Dalmia Cement-led consortium are in a pitched battle to acquire Binani Cement. Like the now infamous Vodafone-Hutchison Telecom case, the Binani asset sale could see tax claims from the Dubai and Chinese authorities at a later stage, say tax experts.

Vodafone, which is pruning its role in India through a mega merger with Idea Cellular, is still embroiled in a dispute with tax authorities on its Hutchison-Essar Telecom deal. In 2007, the Vodafone Group, through its Dutch subsidiary, had acquired Hutchison Telecom’s 67 per cent stake in Hutchison Essar, the joint venture company that owned a telecom licence in India, for $11.2 billion. Though the transaction was executed abroad, Indian tax authorities raised a claim of $2.5 billion as the asset purchased was in India.

“The IBC norms should be amended not only to take control of the foreign assets of sick companies but also to ensure that the deal does not become a drag on profitable companies,” said an analyst.

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