Whalesbook
Promoter Tables Full Settlement Plan Post-Auction
The promoter of Aviom India Housing Finance, Kajal Ilmi, has submitted a revised settlement proposal aimed at withdrawing the company from ongoing bankruptcy proceedings. This move follows closely after Unity Small Finance Bank emerged as the highest bidder for Aviom India Housing Finance at a challenge auction, securing the company with an offer of ₹977.5 crore.
The Core Issue
Aviom India Housing Finance entered insolvency proceedings after auditors flagged significant discrepancies in its financial statements. This led to an investigation by the National Housing Bank and ultimately admission of 60 claims totalling ₹1,363 crore by the administrator. The recent auction saw Unity Small Finance Bank place the winning bid, but the promoter's new proposal seeks to resolve the situation outside of a formal takeover.
Financial Implications
Kajal Ilmi's settlement offer includes an immediate upfront payment of ₹554 crore. A substantial part of this, ₹360 crore, is cash already held by the company. The remaining 60% of the total dues are slated to be cleared over the next 28 months. Additionally, the plan involves a ₹225 crore equity infusion from Surat-based Enn Enn Corp. This infusion will result in Enn Enn Corp. acquiring a 60% stake in Aviom India Housing Finance. Enn Enn Corp. has a diverse business portfolio, including real estate, exports, renewable power, and financial services.
Official Statements and Responses
Kajal Ilmi expressed confidence in her proposal, stating, "We are an impact-led, profitable company and there is no reason for lenders to take any haircuts." She believes the proposed governance framework is robust and the net present value of her offer is attractive, aiming to maximize value for lenders and ensure a swift resolution. The administrator, Ram Kumar, has not yet responded to queries regarding the proposal.
Future Outlook
The promoter's settlement plan has been submitted under Section 12A of the Insolvency and Bankruptcy Code (IBC). This section permits the withdrawal of insolvency proceedings if at least 90% of the Committee of Creditors (CoC) approves the settlement, which typically involves full repayment of lender dues. For the proposal to be approved, the applicant, identified as the Reserve Bank of India in this context, would need to file a withdrawal petition with the bankruptcy court. Ilmi has also proposed that the current administrator, Ram Kumar, continue as chairman and that auditors be appointed in consultation with the CoC.
Impact
This development could potentially lead to a quicker resolution for Aviom India Housing Finance's lenders, avoiding the complexities and potential delays of a full bankruptcy process. It also presents an opportunity for the promoter to retain control, albeit with new majority ownership. For Unity Small Finance Bank, it means their winning bid might be superseded if the promoter's plan gains sufficient creditor approval. The overall impact on the Indian housing finance sector sentiment is neutral to slightly positive, as it demonstrates alternative resolution pathways.
Impact Rating: 6/10
Difficult Terms Explained
- Bankruptcy Proceedings: A legal process initiated when a company cannot repay its debts, leading to the potential liquidation or restructuring of its assets under court supervision.
- Insolvency and Bankruptcy Code (IBC): A law in India designed to consolidate and amend laws relating to insolvency resolution of corporate debtors, individuals, and partnership firms in a time-bound manner.
- Challenge Auction: A type of auction, often within insolvency proceedings, where a higher bidder can challenge and potentially acquire the asset after an initial auction, often to maximize recovery for creditors.
- Committee of Creditors (CoC): A group of financial creditors whose claims have been admitted, responsible for approving or rejecting resolution plans for a corporate debtor under the IBC.
- Section 12A of IBC: A provision that allows a corporate debtor to withdraw insolvency proceedings if they can satisfy the creditors, typically by making full payment of their dues, with the approval of at least 90% of the CoC.
- Equity Infusion: The process where new investors provide capital to a company in exchange for ownership stakes (shares).
- Net Present Value (NPV): A method used in finance to estimate the value of an investment based on its expected future cash flows, discounted back to the present.
- Haircuts: In finance, a haircut refers to the reduction in the value of an asset or collateral when it is used to secure a loan. In debt resolution, it means creditors agreeing to accept less than the full amount owed.
- Discrepancies: Differences or inconsistencies found, particularly in financial statements, that deviate from expected or accurate records.
- National Housing Bank: A regulatory body in India established for the regulation and supervision of housing finance institutions and for providing financial support to such institutions.