Operational creditors at par with lenders on haircuts under IBC, says Icra

  • The report shows 49% of the cases have been referred by the operational creditors
  • This analysis is based on the data for 92 CIRPs

Mumbai: Credit rating agency ICRA has estimated that haircuts for operational creditors were not materially different from those taken by financial creditors for cases under the Insolvency and Bankruptcy Code (IBC).

The analysis by ICRA was based on data for 92 corporate insolvency resolution plans (CIRPs) that have yielded a resolution plan up to 31 March, 2019 under IBC. Of the 92 insolvency resolutions, operational creditors would realise about 42% of the total claims of 8,140 crore (haircut of 58%) and financial creditors would realise 44% of the total claims of 1.6 trillion, the rating agency found.

“In absolute terms though, the loss to the financial creditors has been significantly higher compared to the operational creditors," it said.

Abhishek Dafria, vice-president and co-head, corporate ratings at ICRA said, “We believe that the reason the operational creditors have not suffered significantly higher haircuts is on account of the criticality of certain creditors to the core operations of the corporate debtors." As a result, the resolution applicants have ensured that relationships with such creditors are maintained, he added.

“Among certain large size corporates, realisation by the operational creditors has been much higher than the average realisations such as that seen in the resolutions of Bhushan Steel Limited (81% of claims received by operational creditors) and Binani Cement Limited (86%)," he said.

The extent of funds to be paid out to operational creditors as part of the resolution plan of Essar Steel is under dispute, highlighting the difficulty in satisfying all the parties, especially when the operational creditors do not have a say in the selection of the resolution plan, he added.

One of the biggest successes of the introduction of the IBC has been the power given to the operational creditors to take a defaulting corporate debtor to the National Company Law Tribunal (NCLT), as per ICRA. Till 31 March, 2019, of the 1,858 corporate debtors referred to the NCLT, 920 cases (49%) have been referred by the operational creditors, the report said.

“As the operational creditors do not form part of the Committee of Creditors (CoC) that evaluate the resolution plans, it is the responsibility of the financial creditors who are part of the CoC to ensure that the operational creditors receive a fair share of their claims so as to maintain their financial health," said Dafria.

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