Gail India: Bankruptcy court approves Gail India’s resolution plan for JBF Petrochemicals

India’s bankruptcy court Monday approved Gail Ltd’s resolution plan of Rs 2101 crore for JBF Petrochemicals, in a rare instance of a government-owned entity acquiring a company under the Insolvency and Bankruptcy Code.

The sale of JBF Petrochemicals will equate to a 41% recovery for financial creditors. The resolution professional, Sundaresh Bhat, backed by BDO India, admitted Rs 5628 financial and operational creditors claims.

Gail has offered Rs 2015.4 crore secured and Rs 14.4 crore to unsecured creditors against their total claim of Rs 4915 crore.

This would be the third acquisition by a government-owned entity under the Insolvency and Bankruptcy Code. Earlier, NTPC acquired Jhabua Power, an Avantha group company and recently, Indian Oil Corporation emerged as the winning bidder for Mercator Petroleum Ltd.

The Mumbai bench of the National Company Law Tribunal (NCLT) led by a judicial member Dr Madan B Gosavi, and a technical member Ajai Das Mehrotra, while approving the resolution plan, noted that, as far as various statutory rights vested with the corporate debtor in the form of various licenses, leases, and other alike matter, we make it clear that the successful resolution applicant (GAIL) has to approach the concerned statutory authority for those concessions and those authorities will consider the same as per their established procedure.

The order stated the fair value and the liquidation value of JBF Petrochemicals was pegged at Rs 2719 crore and Rs 1616.6 crore, respectively.

Lenders had received seven expressions of interest, including Reliance Industries, Jindal Power, MPCI, IOC-ONGC consortium and Gail, said people aware of the development.However, only three companies – IOC-ONGC consortium, MPCI and Gail eventually gave a resolution plan on August 30, 2022, the order issued by Ajai Das Mehrotra and Madan Gosavi said.

JBF Petrochemicals was admitted for corporate resolution by the Ahmedabad NCLT last February after an out-of-court work resolution since October 2017 collapsed. Dubai-based Citex Energy and Assets Care and Reconstruction Enterprise (ACRE), an ARC backed by Ares SSG Capital, had offered USD 190mn and 160mn, respectively. However, the negotiations did not progress due to differences over the offer made by bidders.

JBF Petrochemicals has set up a 1.25mn tonne per annum PTA plant in Mangalore, Karnataka, at an estimated cost of $ 603.8mn. It is a backward integration project set up by JBF Industries in partnership with KKR to supply PTA to JBF Industries. CFM Asset Reconstruction Company, last year, had acquired the entire debt – of Rs 825 crore – from all banks.

The plant started a trial run in March 2017, but the company defaulted in October of that year after it failed to raise the additional $90mn (Rs 672 crore) long-term loans needed to operate the plant.