UltraTech googly puts Dalmia, Binani lenders on backfoot

MUMBAI: Aditya Birla Group firm UltraTech stumped rival bidder Dalmia and lenders to the bankrupt Binani Cement by proposing to buy the promoters’ stake in Binani through a bilateral deal outside the formal bankruptcy process.

UltraTech, India’s biggest cement firm, told stock exchanges on Monday that it will issue a comfort letter to provide Rs 7,266 crore to Binani Industries to end insolvency proceedings against Binani Cement. The move appeared to catch Binani Cement’s lenders and Dalmia off guard especially after the vote last week by lenders in favour of Dalmia over UltraTech as part of the formal bankruptcy process. The AV Birla firm had bitterly opposed the selection of Dalmia by the lenders and is contesting the decision in the National Company Law Tribunal (NCLT) in Kolkata.

“Since Binani Industries is a listed company, it is its obligation to get better realisation of value and give it to the shareholders,” said KK Maheshwari, managing director, UltraTech.

“As a director, Binani is duty-bound to take care of all stakeholders that are getting affected by the bid.”

He said his company will ensure full repayment of debt to unsecured creditors also.

The move is likely to trigger a bitter battle as Dalmia may fight for control of the company which it believes it won in a fair contest at the NCLT.



The tribunal asked the resolution professional to submit the Dalmia plan with it on Monday and would consider it on March 22.

A banker involved in the process told ET that they have not received any formal offer from Binani Cement or UltraTech. “We as lenders have not received any offer from either Binani Cement or UltraTech Cement. However, for us to accept this offer, the bankruptcy proceeding against the company will have to be terminated and only Supreme Court can exercise that power,” he added. Lenders said that the plan has been endorsed by 99.5% of creditors and that they will endorse it again in all probability.

A person close to the development said that Dalmia Bharat has also given its letter of intent and bank guarantees worth Rs 600 crore to lenders and will have to be compensated by the creditors if Binani’s plea is accepted.

Indian bankruptcy laws provide for a process under which aprospective bidder can acquire the assets of a bankrupt firm. They don't provide for a settlement like the one agreed upon by UltraTech and Binani Industries, the promoter of Binani Cement.

Binani Industries said the decision to sell stake to UltraTech was to maximise the value of the asset.

“Section 60, clause 5 of the IBC gives power to NCLT to get a stressed asset out of the resolution process… they could also consider the provisions in the Companies Act,” said Sameer Kaji, senior adviser for corporate strategy, Binani Industries. “However, it is still to be seen how they exercise their power.” Legal experts were divided over whether UltraTech’s move was valid under law.

“The commercial agreement between Binani Industries and UltraTech is invalid as the powers of the directors of the company is suspended during the period when the company is under the bankruptcy proceedings,” says Shavez Mukri, a senior lawyer at Indialaw LLP, a legal firm. “UltraTech should have a resolution plan with the lenders and not directly with Binani.”

Alok Dhir, managing partner at Dhir & Dhir Associates and an insolvency expert, voiced a different opinion. “There is a right to redemption under the Contract Act for the borrower,” he said. “If they pay the entire amount due to the creditors, they can approach the Supreme Court under article 142 of the Constitution of India and seek complete justice and set aside the resolution process under the IBC.”

UltraTech petitioned the NCLT court in Kolkata for a more transparent evaluation process and cancellation of the Committee of Creditors meeting on March 14 which voted in favour of Dalmia. It also submitted its highest bid of Rs 7,266 crore to the court which heard the case on Monday. Binani Industries also told the court of its intention of selling stake to UltraTech. “We feel we have been aggrieved… we were not happy with the level of transparency that we sought from the RP,” Kaji of Binani said.

Binani owes close to Rs 3,800 crore to financial creditors and Rs 500 crore to operational creditors. Other liabilities include Rs 400 crore of statutory dues, Rs 620 crore of corporate guarantees of EXIM Bank which got invoked prior to the beginning of the resolution process, and another set of guarantees for foreign assets worth Rs 240 crore.