GAIL to take over debt-laden JBF Petrochemicals in a rare deal for a PSU

Lenders have issued a letter of intent toGail Ltd, giving a go-ahead to the company to take over the debt-ladenJBF Petrochemicalsthrough the insolvency process.The letter of intent was issued on Sunday, following whichGailhas to deposit 10% of its bid value or about Rs 200 crore as bank guarantee by Wednesday, said people familiar with the process.

The takeover of JBF Petrochemicals by Gail will be a rare instance of a public sector enterprise buying out a distressed company since the Insolvency and Bankruptcy Code came into force in 2016.

“Lenders approved Gail’s plan by an absolute 100% majority in a vote conducted on October 15. Its offer is superior in both financial as well as operational matrix,” said one of the persons, who did not wish to be identified. “Now, as soon as Gail deposits the bank guarantee, the resolution professional will approach the National Company Law Tribunal for approval.”Gail’s Rs 2,015-crore offer, translating into a nearly 60% haircut for all creditors, was comfortably ahead of the Rs 1,705 crore bid of a consortium of Oil and Natural Gas Corporation and Indian Oil Corporation after two rounds of bidding.

A Gail spokesperson and the resolution professional did not reply to ET’s emails seeking comment.

Founded as a yarn texturing firm in 1982, JBF Petrochemicals manufactures Purified Terephthalic Acid (PTA), which is used to make polyester value chain products used in consumer goods, textile and packaging industries such as PET bottles used to sell soft drinks. The company has a 1.25-million tonne PTA plant in Mangalore.

JBF Petrochemicals owes lenders a total of $463 million (about Rs 3,658 crore) in principal, primarily from external commercial borrowings and foreign currency term loans. IDBI Bank is the lead lender, with $252 million of loans outstanding. Other lenders include Exim Bank, Indian Overseas Bank, Bank of Baroda and Union Bank of India. Total outstanding, including debt, is close to Rs 5,000 crore.

Gail is India’s leading gas trading, transmission and petrochemicals company with 70% share of the gas transmission market.

The company’s bid has beaten interest from large companies such as Reliance Industries, a consortium of HPCL-Mittal Energy, and BC Jindal Group’s Jindal Poly Films which had also submitted expressions of interest for JBF Petrochemicals but did not make a formal bid.