Adani seeks resolution of HDIL via asset demerger

All three prospective bidders of Housing Development and Infrastructure Ltd (HDIL) have stayed away from submitting any resolution plan as the deadline expired on January 7. Instead, one of them, Adani Properties Private Ltd (APPL), has filed an interlocutory application in the National Company Law Tribunal (NCLT), seeking partial resolution of HDIL by way of demerger of the identified assets, liabilities, right, title, and interest of the scam-hit real estate company.

Apart from APPL, the two other prospective bidders are Suraksha Asset Reconstruction Ltd and Sunteck Realty.

The invitation for expressions of interest (EoI) was first called in February, 2020, and subsequently revised several times over the last 11 months. People who bought homes from HDIL have alleged that some of the bidders as well as the promoters had indulged in delay tactics and hindered the insolvency process, stretching their wait for a dream home.

Around 4,500 homebuyers, who have invested their life’s savings in various HDIL projects, are eagerly awaiting the close of the insolvency process. HDIL, which was building a dozen mega projects in Mumbai, had left them mid-way as it slipped into a financial mess. The company has over two dozen financial creditors, including a dozen public sector banks, YES Bank and Life Insurance Corporation of India (LIC).

The Mumbai-based real estate company, which specialised in transferable development rights (TDRs), is undergoing a corporate insolvency resolution process at the NCLT since August 2019. TDRs allow developers to build over and above the permissible floor space index (FSI). Typically, TDRs are given to developers and landowners as a sop in slum rehabilitation projects.

In September 2020, the NCLT process suffered a delay after the promoters—Rakesh Wadhawan and his son Sarang—were arrested for their alleged involvement in the multi-crore scam at Punjab & Maharashtra Co-operative Bank (PMC Bank).

Last week (on January 7), APPL had sought an extension of the bidding deadline to enable the committee of creditors (CoC) to consider and vote on their fresh proposal. It also requested the NCLT to direct that no decisions be taken by the CoC that affects the rights of the bidder till such time the proposal is heard and disposed of.

What is clouding the bidding process is the disclosure that a few companies, which are alleged to have ties with the Adani Group, have filed claims of around ₹15,000 crore, most of which was rejected.

Abhay N. Manudhane, HDIL’s resolution professional (RP), said in a letter dated January 8 to CoC that Budhpur Buildcon Private Limited (BBPL), an Adani Group company, had filed a claim of ₹14,391 crore as financial creditor. “The claim was rejected by the resolution professional giving detailed reasons for the rejection,” he said in the letter. BBPL has challenged the decision at NCLT.

During the hearing on January 7, the senior counsel representing BBPL insisted that no CoC meeting be held and no decision be taken on resolution plans before the next hearing, slated for January 11.

Simultaneously, homebuyers have raised concerns over a couple of other operational creditors and sought clarity in handling their claims. In a separate letter to the resolution professional, the homebuyers claimed that apart from BBPL, two other companies, Adani Estates Pvt. Ltd (AEPL) and Jade Agricultural Company Limited (JACL), which “prima facie appears to be” a sister concern of Adani Properties and/or other Adani Group companies, have raised claims as financial creditors.

“JACL had raised a claim of ₹60 crore while AEPL had raised a claim of ₹285 crore. Though the claims of BBPL and AEPL were rejected by the RP, the claims of JACL have been admitted,” the homebuyers wrote in a letter to the resolution professional.

Fortune India has copies of both the letters.

Frustrated with the delay, homebuyers of Whispering Towers, HDIL’s project in Mulund, have in the same letter alleged that various anomalies are taking place in the CoC. They claimed that Manoj Kumar Agarwal, the authorised representative of homebuyers appointed by the NCLT, neither brought the facts before the CoC nor took any steps to rectify the “wrongdoing and antagonistic actions” being taken against the homebuyers, despite pointing out that these actions would affect their interests adversely. Manudhane, the resolution professional appointed by NCLT’s Mumbai bench, too turned a blind eye towards the irregularities despite the homebuyers raising their concerns, they alleged.

When contacted by Fortune India, Manudhane refused to comment, saying all the information required to be given to the regulators and creditors have already been given, and duly put up on their website.

Agarwal too refused to comment. “My job is to attend CoC meetings on behalf of the homebuyers and inform them of the progress. I am not supposed to talk to the media,” he said.

Snehal Kamdar, a senior insolvency professional at Jain Jagawat Kamdar & Co., said the resolution can happen project-wise instead of company-wise for a real estate company. “This is called Reverse Corporate Insolvency Resolution Process,” he said. He cited a National Company Law Appellate Tribunal (NCLAT) order in April 2020 in the matter of Flat Buyers Association Winter Hills-77, a housing project in Gurugram. He also added that in October 2019, the Maharashtra Real Estate Regulatory Authority (MahaRERA) allowed homeowners of a project in Pune, owned by the DSK Group and nearly 85% complete, to take over the stressed project after freezing the promoters’ bank accounts.

According to the latest statement of claims of HDIL’s financial creditors as on November 30, 2020, the total claims admitted stood at ₹7,757 crore. This includes ₹6,896 crore of lenders’ money and ₹861 crore of individual homebuyers. The resolution professional has rejected claims worth ₹14,875 crore, including BBPL’s ₹14,391 crore and AEPL’s ₹285 crore.

The homebuyers are also miffed at the resolution professional’s move to accept a claim of nearly ₹1,850 crore from PMC Bank. “Through its employees, the bank had masked a large number of problematic loan accounts to HDIL, by tampering with its core banking system. Due to these large-scale irregularities, the economic offences wing (EoW) of the Mumbai Police and the Enforcement Directorate have registered offences against senior bank officials. Why should the bank be considered as a financial creditor before the investigation concludes? The outsized loans were given by the bank in bad faith through its employees in collusion with HDIL promoters. The RP has made an apparent error on record to admit the yet unverified claims of PMC Bank,” said a homebuyer.

Another important demand by the homebuyers of Whispering Towers has been to consider a project-wise resolution. They want a separate resolution plan for their project in Mulund, while other such projects could be dealt with separately and singularly.

“We believe HDIL should go for a piece-meal approach to garner better valuation. In the Mulund project, there are around 1,500 flats, of which 450 were sold, with most buyers paying around 70%-80% of the cost. That leaves over 1,000 flats and 20%-30% of the remaining payment from the flats already sold. For a new builder who walks in, the project offers a cool ₹1,200 crore in profit at an extremely conservative estimate. The only loan taken for the project is around ₹140 crore from Allahabad Bank,” said a homebuyer from Mulund.

They believe that clubbing the resolution of the Mulund project with the rest of the company would lead to immense loss of value. Also, clubbing it with all other projects would expose them to massive liabilities of the company, they said.

Just before HDIL went into the insolvency process, Bank of India and Allahabad Bank had tried unsuccessfully to settle their loans with their one-time settlements (OTS). “While Bank of India offered an OTS of ₹350 crore as against an outstanding of ₹522 crore, Allahabad Bank’s OTS was for ₹50 crore against the ₹131 crore outstanding,” said sources close to the insolvency process.

A decade ago, when most real estate companies in Mumbai were busy developing either luxury housing projects or mid-segment projects, HDIL continued with its slum rehabilitation projects, and picked up a huge amount of TDRs. Around 70% of HDIL’s residential projects have been slum rehabilitation projects. According to HDIL’s books, in the first quarter of 2018-19, it had around 1 million sq. ft. of TDRs. Some industry officials said HDIL was sitting pretty with a huge pile of TDRs but the figure quoted was highly inflated.

The Mumbai airport slum rehabilitation project, bagged by HDIL in October 2007, was projected to be a gold mine for it, but turned out to be a big fiasco. It faced huge challenges in clearances and approvals, and ran into huge losses, finally ending with a termination notice in 2014.

Till the end of 2018, the Wadhawans were hopeful of turning the company around. “We are seeing a lot of interest in FSI and TDR sales, especially in business-to-business transactions. TDR is selling in different locations at different prices. It ranges anywhere from ₹4,000 to ₹4,500 per sq. ft. [and is] going to be about ₹5,000 this quarter (Q2 of 2018-19),” Sarang Wadhawan had said in a quarterly earnings call in October 2018. Subsequently, Wadhawan had said the airport slum rehabilitation project had virtually punctured his business empire.

For the homebuyers waiting to get possession of their dream homes, however, there seems to be no immediate relief in sight.