JBF Petrochemicals lead lender IDBI Bank plans to file bankruptcy petition against KKR-backed project

04 May 2018
 
 
JBF Petrochemicals Ltd’s lead lender, IDBI Bank, is planning to file a bankruptcy petition against the KKR-backed project, according to two sources with knowledge of the situation.
 
The state-owned bank is to file its petition at National Company Law Tribunal’s (NCLT) Mumbai bench, the two sources added.
 
IDBI Bank declined to comment.
 
The petition would be the third since electrical cable manufacturer KEI Industries and steel pipe maker BMS International separately filed bankruptcy petitions against the unlisted company at the NCLT’s Ahmedabad bench. The hearings for both cases have been adjourned to 7 May.
 
A bankruptcy petition late last year by another trade creditor, Inox India, was settled out of court, according to a NCLT order dated 28 November 2017.
 
IDBI Bank has invited a small number of accounting firms, including three of the Big Four, to submit proposals for the role of interim resolution professionals (IRPs) for the JBF Petro matter, according to the two sources.
 
Under India’s bankruptcy code, a party applying to enter a company into bankruptcy proceedings is required to nominate an IRP in its petition and must obtain approval from the NCLT to appoint the nominee.
 
The loan
 
A syndicate of banks led by IDBI and including EXIM Bank, Bank of Baroda and Indian Overseas Bank part-financed JBF Petro’s refinery complex in the southern Indian city of Mangalore, Karnataka with a USD 416m Libor+ 500bps dollar denominated loan facility, the company’s through March FY14 and FY15 financial statements filed with the Ministry of Corporate Affairs (MCA) shows.
 
The loans, guaranteed by NSE and BSE-listed parent company JBF Industries, are secured by pari-passu mortgages on the company's movable and immovable properties situated at Mangalore and Valsad, in Gujarat; a second ranking pari passu charge on current assets situated at Mangalore; a corporate guarantee by ultimate holding company JBF Industries Ltd; and, a pledge of 51.37% shares of the company, the statements show.
 
The loans are repayable in 14 equal semi-annual instalments of USD 29.7m commencing 12 months from the scheduled commercial operations date, the statements note.
 
The loan guarantor, JBF Industries, has financial troubles of its own and on 8 February announced that it was late on servicing debts and was in the process of restructuring, according to notes to its 3Q18 through December financial statements, which didn’t specify which debt.
 
Operational problems
 
JBF Petro’s financial woes stem from the cost escalations related to the delays in full commencement of operations at the petrochemical complex, as reported.
 
JBF Industries said its step-down subsidiary had to shut down the plant for "eight-to-10 weeks" shortly after it was commissioned in April 2017 to remove deficiencies observed in the initial operations, according to its 4Q17 through March results announced on 30 May 2017.
 
The checks continue and recommissioning of the plant is "delayed due to financial constraints," JBF Industries said in its latest 3Q18 through December financial results issued on 8 February.
 
The refinery has the capacity to produce 1.25m tonnes per annum of purified terephthalic acid (PTA), a key upstream product for JBF Industries.
 
KKR in 2015 bought a 20% stake in polyethylene terephthalate (PET) chips and biaxially-oriented polyethylene terephthalate (BOPET) producer JBF Industries for USD 150m to help fund the construction of the petrochemicals refinery complex.
 
KKR had been fishing around for USD 300m financing to fund the purchase from some of the banks their holds of the project finance loan as well as to cover costs associated with the refining facility, as reported. In February, KKR sought around INR 5bn (USD 76.61m) financing just to enable the recommissioning of the delayed project, but made little headway, as reported.
 
Parent problems
 
Domestic banks holding project loans to JBF Industries were close to restructuring the Mumbai-based polyester maker’s debts early this year under the Reserve Bank of India's S4A scheme, according to two sources familiar with the discussions. However, the plan was abandoned after the central bank on 12 February cancelled its S4A scheme and all other quasi-regulatory out-of-court restructuring processes, the two sources said. The plan would have included a partial conversion of debt into the equity of the JBF Industries, they said.
 
In its 12 February circular scrapping the out-of-court restructuring processes, the RBI gave banks 180 days from 1 March to reach a restructuring plan with any defaulted debtor or be required to put the debtor through a NCLT-supervised bankruptcy resolution process.
 
by Pranav Nambiar and Pallavi Ail