Jaypee’s case is unique as it involves the general public besides banks. These are common people who booked homes with the real estate developer during 2006-10.
The Jaypee Infratech case is testing the limits of the Insolvency and Bankruptcy Code (IBC). By all accounts, the highest bid for the company will be rejected by the committee of creditors when it meets on May 7. Under normal circumstances, the company would then have to be liquidated. But not so in this case, where the Supreme Court has placed the interest of home buyers above that of the banks. That begs the question: Can Jaypee Infratech continue to be a Jaiprakash Associates unit?
Jaypee’s case is unique as it involves the general public as well besides banks. These are common people who booked homes with the real estate developer during 2006-10 as the company launched one project after another along the 167-km Yamuna Expressway, its crown jewel. Most buyers have paid almost the full amount – Rs 30-Rs. 40 lakh of their hard-earned money – to get the house of their dreams. The wait has turned out to be quite a long one for many. As on March 15, the company had completed 13,915 flats with around as many awaiting construction.
Being unsecured lenders to the company, home buyers will be left with the crumbs if the company were to be liquidated. That scenario brings the parent company in contention though as per the bankruptcy code, Jaiprakash stands no chance of retaining its subsidiary. The bankruptcy code doesn’t allow an existing promoter to get back the unit it couldn’t manage in the first instance. Binani Cement and Essar Steel are examples of that.
The Allahabad bench of National Company Law Tribunal could very well order liquidation of the company–a highly improbable scenario. It could also then leave the matter for the Supreme Court to decide. The apex court currently is not grappling with the insolvency matter. The court is currently only engaged in protecting the interest of home buyers — something that hinges on what happens to the builder with no cash to build those houses.
The Jaypee case has thrown up interesting questions even as it is acknowledged that the offer of Jaiprakash promoter Manoj Gaur before and after it became an NCLT case was better than any offer a bidder has proposed to the creditors. This is something IDBI Bank, one of the lenders to Jaypee, too agrees with.
According to a note prepared by IDBI Bank, Jaypee’s actual value stands at Rs 17,111 while its distress value is pegged at Rs 14,548 crore. Lakshadweep Pvt Ltd, the highest bidder, has pegged the valuation at Rs 7,000 crores, less than half of IDBI’s distress scenario number.
As per a third party who claims his estimate to be conservative, the value of the company’s assets should not be less than Rs 20,277 crore. This is derived from the hospital being worth Rs. 500 crore, 167-km Yamuna Expressway Rs. 3,500 crore, 900-acre land parcel near Formula-1 track at the circle rate of Rs 7 crore per acre, 1,225 acres in Jewar at circle rate of Rs 3.34 crore per acre, 1,185 acres near Agra at circle rate of Rs 3.28 acres per acre and 10 million square feet FSI at Noida at Rs 2,000 per square feet. Another 858 acres is under dispute.
“Jaypee is clearly being undervalued by all the bidders so far. The value of the assets is much higher. Also, land and property rates have already started firming up in the Noida-Greater Noida area owing to the proposed international airport at Jewar. In this period, Jaypee has also continued to deliver the flats to the buyers, clearly showing its intent to stay in the game,” that person had earlier told Moneycontrol.
According to an estimate of one of the creditors, the net present value of the toll that Yamuna Expressway will bring to Jaypee’s coffers till August 2048, when the company’s right to operate it ends, is Rs 15,426 crore. The book value of a Jaypee Infratech share in 2016-17 was Rs 37.19.
“Creditors will be scared to accept Lakshadweep’s offer for fear of investigation later on. The offer implies zero value for 14 crore shares held by State Bank of India Trustee, Life Insurance Corporation of India and IDBI Bank. Much as equity can reduce to zero in a bankruptcy case, state-owned companies will be reluctant to do it after already taking a haircut on their loans,” a person keenly tracking the developments at the group told Moneycontrol.
As reported by Moneycontrol earlier, India Infrastructure Finance Company Ltd, the second largest lender to the beleaguered group with 10.6 percent share in Jaypee Infratech’s debt, has written to IDBI to call for higher bids.
Higher bids don’t look probable for two reasons. The lone bidder left in the fray, Lakshadweep, instead of raising the bid as desired by the creditors, actually lowered it by Rs 350 crore from Rs 7,350 crore when the lenders sat with it to negotiate the final offer.
Time is also running out. May 12 is when the 270-day deadline for the insolvency professional to arrive at a resolution of the debt expires. The Supreme Court meets May 11 before it breaks for a two-month-long vacation.
So can one say Jaiprakash may still retain Jaypee Infratech even if the law doesn’t allow it to bid? We are not there yet and that’s because of home buyers the Supreme Court is looking to protect. A representative of one of the home buyer’s associations told Moneycontrol it would oppose tooth and nail any proposal to let Jaiprakash retain control of Jaypee Infratech.
“There is a credibility issue with Jaiprakash. We want a new party taking over and delivering the flats,” he said. While that desire may be there, it must also be noted that the Rs 1,300 crore initially sought to be refunded by the home buyers at the peak of distress almost halved to Rs 750 crore.
Clearly, Jaypee is a test case that would have thrown up vast learnings by the time it is resolved. Will it leave the consumer being king and the bankruptcy code richer? One of the biggest Jaypee projects is called ‘Wishtown’. If wishes were horses…
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