CASE STUDY

ON

DISTRIBUTION OF DEBT BURDEN

ON BUSINESS UNITS IN ORDER
TO REVIVE FROM BANKRUPTCY

Submitted to: Prof. Sanjay Tomar

Submitted by: Avantika Bisht
Section: F3
Roll no. : 18429

JAIPRAKASH ASSOCIATES LIMITED

HISTORY OF THE COMPANY
JAIPRAKASH ASSOCIATES LTD. (JPASSOCIAT)
Jaiprakash Associates Ltd is a diversified infrastructural industrial conglomerate
in India. The company is the leader in Engineering and Construction of
Hydropower projects in India. They are the only integrated solution provider for
Hydropower projects in the country with a track record of strong project
implementation in different capacities. The company is engaged in the business
of integrated engineering construction and operates at the locations of their
clients and uses electric energy for implementation of various projects
undertaken by them. They are also engaged in the business of manufacture and
marketing of cement, power, fertilizer, real estate development, sports and owns
Five Star Hotels at New Delhi Mussoorie and Agra and a Golf Course with
associated recreational and residential facilities at Greater Noida as part of their
real estate business. Jaiprakash Associates Ltd a part of the Jaypee Group was
incorporated in the year in the year 1995 under the name Bela Cement Ltd.
The company was promoted by Jaiprakash Gaur a well-known leader in the
construction of multi-purpose river valley and hydropower projects.

Shri. Jaiprakash Gaur, the founding father of Jaiprakash Associates Limited

after acquiring a Diploma in Civil Engineering in 1950 from the University of
Roorkee, had a stint with Govt. of U.P. and with steadfast determination to
contribute in nation building, branched off on his own, to start as a civil
contractor in 1958, group is the 3rd largest cement producer in the country. The
groups cement facilities are located in the Satna Cluster (U.P), which has one of
the highest cement production growth rates in India.
The company is listed both on National Stock Exchange and Bombay Stock
Exchange. Also its subsidiaries Jaypee Infratech and Jaypee Power are also
listed on the stock exchange.
Jaiprakash Associates has been a consistent multibagger between 2004 and
2007, but the stock is down over 20 per cent year-to-date. It remained volatile
all through 2017 and in 2018 so far.
Jaiprakash Associates Limited is the flagship company of the Jaypee Group.
Meaning of flagship company- A flagship company is a company which is the
leading company in a group of companies. It may have a number of subsidiary
companies but it is not mandatory thing to be called or known as a flagship
company of a group of companies. It represents the brand image of the group in
the market/industry.
Jaypee Infratech, Jaypee Power, Jaypee cement and Jaypee Sports these all are
the subsidiaries of Jaiprakash Associated Limited.
Jaiprakash Associates Limited (JAL) has a specialisation in hydro power plants
that is so because it is the only private company that is the largest player in this
power sector.
JAL has so far the distinction of participating in 54% of new hydropower
projects under India’s Tenth Five Year Plan.

The projects undertaken by the company in the power sector are:

The Group operates, 400 MW Vishnuprayag Hydropower Station (Uttarakhand)
and has constructed 300 MW Baspa II & 1000 MW Karcham Wangtoo
Hydroelectric plants (Himachal Pradesh).
In addition, 3200 MW projects (2700 MW Lower Siang & 500 MW Hirong) are
coming up in Arunachal Pradesh and 720 MW (270 MW Umngot and 450 MW
Kynshi Stage –II) in Meghalaya.
After having established a strong presence in the Hydropower sector the Group
has initiated its entry into Thermal Power Generation, &Power Transmission.
The Group has constructed and engineered prestigious thermal power projects.
In Madhya Pradesh the Group has built and operates the 500 MW Bina Thermal
Power Project as well as 1320 MW Nigrie Coal fired Thermal Power Plant. The
Group has developed 3300 Mega Watt of supercritical thermal power plans of
which a 1980 Megawatt power station is in Bara in Uttar Pradesh.
The Group has also successfully implemented a Transmission system associated
with 1000 MW Karcham Wangtoo Hydro-electric project. The Transmission
project consists of a 214 km long transmission line between Wangtoo in
Himachal Pradesh and Abdullapur in Haryana.

Jaypee group is the 3rd largest cement producer in the country. The groups
cement facilities are located in the Satna Cluster (M.P.), which has one of the
highest cement production growth rates in India. The cement business of the
Jaypee Group is as follows

The cement business of the group had given a good profits to the company till
2013 and 2014 Jaypee Group was the third largest cement producer in the entire
country.
The company’s other businesses were also performing well.
In the previous days Jaiprakash Associates also used to be listed on NIFTY 50.

PROJECTS UNDERTAKEN THAT TURNED THE CONDITIONS OF THE

GROUP UPSIDE DOWN:
1. YAMUNA EXPRESSWAY
The project was undertaken by Jaypee Group. The idea was to reduce the
travel time between Noida and Agra. The length of the expressway is 165
km. the cost of the project was Rs.13300 crores. It took 47 months to
complete the project. Although the project was completed two years
behind the decided date of completion.

2. FORMULA 1 RACING TRACK

The Formula One also known Formula 1 or F1 is the highest class
of single-seater auto racing sanctioned by the Fédération Internationale de
l'Automobile (FIA) and owned by the Formula One Group.
This was brought in India by the Jaypee Group by Jaiprakash Associates
Ltd.

3. TOWNSHIPS OF JAYPEE GROUP

Jaypee Greens, Greater Noida, Wish Town' at Jaypee Greens, Noida and
Jaypee Greens Sports City are started by the Jaypee group under its real
estate division.
SWOT ANALYSIS OF THE ABOVE PROJECTS

STRENGTH- Jaiprakash Associates Limited was a multibagger between 2004

to 2007. The company was the biggest private enterprise to be engaged in the
power division. Also Jaypee Group’s cement division was the third largest
producer of cement in the country. Due to its renowned and well established
name in the field of engineering and construction the company got the above
projects. The name of the Jaypee group itself was its strength.

WEAKNESS- we would not say that the group had any weakness. But the
company had to invest thousands of crores of rupees in the projects
mentioned above. The projects they started were insanely costly.

OPPORTUNITIES- with the achievement of the responsibility of construction

of Yamuna Expressway, Jaypee group got the opportunities of
construction of townships along the expressway on the lands given by the
government.
Also the group constructed F1 track near the expressway area so that it tin
turn would increase the value of the townships built by them.
Also it was an immensely deal that the Jaypee Group brought a sports
event like Formula 1 to India.

THREATS- threats to the Jaypee group were that they did not estimated the cost
of materials and construction to increase over time. Also they had not
expected that the project would get completed two years after the decided
date of completion. They had no idea that the political and legal
conditions might change in the future.

TURNING POINTS

 Jaiprakash Associates Ltd was chosen to build the Yamuna Expressway

joining Noida and Agra. The Group entered into construction of
expressways with the Yamuna Expressway project – a 165 km access
controlled 6 lane super expressway along the Yamuna River connecting
Noida and Agra on Build – Own – Transfer basis. The project envisages
ribbon development along the expressway at 5 locations totalling 25
million square metres for residential/industrial/institutional purposes and
shall trigger multidimensional, socio-economic development in Western
U.P. besides strengthening the Group’s presence in real estate segment in
this decade. The expressway was inaugurated in the year 2012 by Uttar
Pradesh CM Akhilesh Yadav. The expressway took around 47 months
 and Rs 13,300 crores to build that runs from Greater Noida to Agra.

 The government in return for the money for the expressway project the
company received land from the government in return for compensation.
 In lieu of building the Yamuna Expressway, the company got 6,175 acres
of land across five locations (1,235 acres each) on the expressway, which
will be used to develop close to 530 million sq. ft. of real estate. 

 Also the company was allowed to develop townships around the

expressway and on the given lands by the government so that the
company can generate the revenue from the houses sold.

 In the year 2008 the company also constructed the F1 racing track. It is
the only company that brought a thing big like this to India. Jaypee Group
organized three Formula One races at its Buddh International Circuit at
Greater Noida, Uttar Pradesh, from 2011 to 2013 before the Indian Grand
Prix ran into tax troubles with the state government. Jaypee Sports
International Ltd had signed a five-year contract with Formula One
Management (FOM) to host the championship in India.

 The F1 track hosted races in 2011, 2012 and 2013 despite having a
contract for 5 years i.e. 2011-2015.  Jaypee Sports International Ltd
(JPSIL) had signed a five-year contract with Formula One Management
(FOM) to host the championship in India.

 Despite the hostile economic conditions, Jaypee decide to stick to its plan
and pumped around Rs. 2000 crore in building the Buddh International
Circuit on the outskirts of Delhi.

 According to the Mint as on 24/04/2017-   Supreme Court held that

Formula One World Championship has a permanent establishment in
India and income accruing from it is taxable. The Supreme Court held
that Formula One World Championship (FOWC), which conducts
Formula One car racing events, has a permanent establishment for its
business in India and income accruing from it is taxable. A permanent
establishment (PE) is a fixed place of business, which generally gives rise
to income or value-added tax liability in a particular jurisdiction.

  The tax to be levied at a rate of 40 per cent of the total business income.
In addition, there will be additional interest that will be imposed over and
above it. The Supreme Court verdict also stated that payments made by
Jaypee Group to Formula One management for the use of symbols and
 logos will also be treated as business income and not royalty and hence,
will be taxed as well. The court said that such symbols were used for
hosting an event and not for intellectual property purposes.

  The Delhi government also wanted to add an entertainment tax for

hosting F1 races at the Buddh International Circuit, which only added to
the overburdened motorsport event. 

 The real estate projects of the company were- Jaypee Greens, Greater
Noida, Wish Town' at Jaypee Greens, Noida and Jaypee Greens Sports
City.

 EXPECTATION BEHIND IT- it was expected that the F1 race by far the
biggest sporting event in the country would lead to a massive urge in real
estate prices in the region with Jaypee directly deriving benefits by
building a slew of townships around the track. The increased demand for
housing in turn would increase the demand for power and cement
bringing all around prosperity for the diversified group.

POLITICAL SITUATIONS FROM 2003-12

During the years 2003-2007 i.e. from 29 August 2003 to 13 May 2007 (3 years,
257 days) the Samajwadi Party was in power in Uttar Pradesh.
In 2003, an idea was conceived of reducing the travel time between Delhi and
Agra. But the project could not start because of a change of government in the
state in 2003 and also it wasn't financially viable back in 2003. The project was
reactivated in 2007 when Mayavati regained power and was renamed Yamuna
Expressway. The Bahujan Samaj Party came into power on 13 May 2007 to 15
March 2012 (4 years, 307 days).
Yamuna Expressway Project was implemented by Jaypee Group. In May 2012,
Jaypee Group informed state government officials that construction of the
expressway had been completed. Yamuna Expressway was inaugurated by CM
Akhilesh Yadav on 9 August 2012.
The Samajwadi Party came into power again in 15 March 2012 to 19 March
2017 (5 years, 4 days).
So the expressway completed in May 2012 but inaugurated in August 2012. The
project started 2 years behind of its original target completion date.
Also the races on the F1 track took place only in the years 2011, 2012 and 2013.

WHAT WENT WRONG?

 The housing projects here still remain incomplete, and barely a year after
the expressway became operational, Jaypee had to sell a 300-acre land
parcel to Gaursons Ltd for a little more than ₹1,500 crore. If the timing
 had been right, it could have done to Jaypee what Gurugram did to DLF.
But the real estate market has just not recovered since 2008.
 The time to construct the expressway was delayed. The cost of materials
and the cost of instruction also increased over the time. Also the cost of
acquiring the land from the land owners kept on increasing from the
earlier decided price.
 The advent of global recession in 2008 pushed own the chances of the
success of this project. The economic growth dwindled in the country
while the interest rates went in the opposite direction.
 The costs to organise and host the races on the track rose tremendously.
2000 crores to build the track. 197.7 Crore spent in licensing fee. Figure
rose sharply to 249.6 crores indicating the presence of escalation clause in
the contract. Additional operating expenses of Rs 121 crore. Rs 8-10
crores were spent on custom duties.
 From the race of 2011 the promoters could only recover Rs 140 crore
despite 95000 fans turned up for the event. The figure dropped nearly to
half Rs 76 crore in 2012. But in 2013 they recovered Rs 113 crores.
 The Mayavati and Delhi government saw this event not as a sport but as
an entertainment activity and hence imposed entertainment taxes of more
than 68% making the tickets more expensive.
 Taxation issues and bureaucratic hurdles have largely been held
responsible for the absence of India from the Formula 1 calendar.
 Also the crisis of the company came into limelight when the IDBI Bank
filed a case against the company for 550 crores under the Insolvency and
Bankruptcy Code 2016.
 The action was taken by the bank only to get their money quick but it
went opposite. It brought down the reputation of the company and
decreased its value to huge level. People thought that the company has
gone insolvent and started filing cases against the company for non-
fulfilment of house projects. The value of the share prices of the
company fell tremendously. Once the value of the share price of the
company was Rs 300 but today it is only Rs 2.67.

PESTEL ANALYSIS
A PESTEL analysis is a framework or tool used by marketers to analyse and
monitor the macro-environmental (external marketing environment) factors that
have an impact on an organisation. This is to be done by a company before
introducing new products, entering into new markets or taking up new projects.
This analysis gives you an idea of the political, economic, social, technological,
environmental and legal factors that can impact any business.

In my point of view the company should have conducted a PESTEL analysis

and should have considered the results from it.

POLITICAL- The changing political situations were harmful for the company.
Delhi and Mayavati government decided that an entertainment tax should be
imposed on F1 racing event.
Also the lands were given by the government to the company but despite
receiving it from the government later the cost of acquiring the lands increased
because the landowners demanded more compensation for their lands.

ECONOMIC- Despite of the recession in 2008 in USA the Jaypee group still
sticked with the plan to construct the F1 racing sports track. The recession also
impacted India and the interest rates went in opposite direction i.e. they
increased. The cost of financing increasing. Also the company should have
estimated the costs of finances well before starting all the projects.

SOCIAL- in India we very well know that the majority of the population resides
in the rural region. In 2019, 68.86% Indian lives in rural areas and 31.14% lives
in urban areas. So we can understand that in 2008 it was more than this.
The tickets for the sports even in 2011 were priced from Rs 2,500 for the natural
stands to Rs 35,000 for the grand stand.
The price of these tickets are not at all meant for the rural class. From the
middle class category, the upper middle class might have some audience for the
most expensive sports event in the world and the percentage of the filthy rich in
the composition of Indian population is very less.
That is the reason why in 2011, 95000 fans turned up for the event. The figure
dropped nearly to half Rs 76 crore in 2012. Because the price bracket of the
tickets is not appropriate for the Indian population if you want them as your
audience.

TECHONOLOGICAL & ENVIRONMENTAL- There were no technological or

environmental factors that impacted the business.

LEGAL- The company had to face taxation issues from the government which
were earlier not imposed on the earnings from the Formula 1 racing event. The
company had already taken debt from various sources. But they had taken a
huge amount of loan from IDBI Bank of 550 crores.
In 2016 Insolvency & Bankruptcy Code was introduced, under which IDBI
Bank filed the case against the company.
Also the homebuyers in their real estate division filed cases against the
company due to non-completion of the houses they have booked and paid the
amounts.

CONCLUSION
  The company due to the above mentioned reasons went into huge debt
crisis.
 As per march 31, 2015 the total debt of the company was 75000 crores.
 The company should have paid attention at least to the factors which were
known to them and should have taken calculative steps before stepping
into high budgeted projects.
 But in the year ended 2018-2019 the company’s debt was around only Rs.
5351 crores.

HOW IS THE COMPANY REVIVING?

The company distributed the burden of loan on its other division
(disinvestments) that are working well and are of sound value. Also by the debt
restructuring plan.
The actions taken are as follows:
 DISINEVSTEMTNS
1. Sale of Cement Plants in Gujarat by JCCL In 2014, Cement Plants
in Gujarat with a capacity of 4.80 MTPA were demerged by Jaypee
Cement Corporation Limited (JCCL), a wholly owned subsidiary
of the Company, through a Scheme of Arrangement to UltraTech
Cement Limited, a company of Aditya Birla Group, at an
enterprise value of Rs. 3,800 Crore besides the actual net working
Capital. The said transaction was consummated on 12th June 2014.

2. Sale of stake in Bokaro Jaypee Cement Limited Further in 2014,

the Company signed an agreement on 24th March 2014 with
Dalmia Cement (Bharat) Ltd. for sale of its entire 74% stake
(9,89,01,000 Equity Shares owned by it) in Bokaro Jaypee Cement
Limited, a Joint Venture between the Company (JAL) 3 and Steel
Authority of India Limited (SAIL), having a Plant with operating
capacity of 2.10 MTPA, at a consideration of Rs. 69.74 per share
(against its cost of Rs. 18.57 per share). The said transaction was
consummated on 29th November 2014 with the receipt of
consideration of Rs. 667.57 Crore.

3. Sale of Cement Grinding Unit of Company at Panipat, Haryana,

Pursuant to approval of Board of Directors on 25th August 2014,
the Company signed a Business Transaction Agreement with Shree
Cement Limited for sale of Company’s 1.5 MTPA Cement
Grinding Unit in Panipat, Haryana for a total consideration of
Rs.360 Crores approx., subject to adjustment for net working
capital & Financial Indebtedness taken over. The Transaction was
 consummated at Rs. 358.22 Crore.

4. Sale of Baspa-II & Karcham Wangtoo HEP by JPVL Jaiprakash

Power Ventures Limited (JPVL), a subsidiary of the Company till
17th February 2017 & an Associate Company w.e.f. 18th February
2017, signed an agreement with JSW Energy Limited for sale of
Baspa-II and Karcham Wangtoo Hydro Power Plants. Pursuant to
Order of Hon’ble High Court of Himachal Pradesh at Shimla dated
25th June 2015, the said plants were hived off by way of sale of
entire shareholding in Himachal Baspa Power Company Limited (a
subsidiary of JPVL), at a value of Rs.9700 Crores, excluding minor
adjustment for working capital etc.

5. Sale of Wind Power Plants of 49 MW of the Company Your

Company on 30th September 2015 hived off the entire 49 MW
capacity of wind power plants being operated, out of which 40.25
MW plants were in Maharashtra (i.e. 16.25 MW at Dhule & 32.75
MW at Sangli) and 8.75 MW plants were in Gujarat (all at Kutch),
on a slump sale basis for Rs.161 crores approx. plus adjustments
for working capital.

6. Sale of entire 74% stake in BJCL The Company had accepted, on

6th October 2016, an in-principle offer from Orient Cement
Limited (OCL), belonging to CK Birla Group, for acquisition of
entire 74% equity stake of JAL in Bhilai Jaypee Cement Limited
(BJCL), a Joint Venture Company of JAL & Steel Authority of
India Limited (SAIL), based on a total enterprise value of Rs.
1,450 Crores subject to adjustments for Working Capital &
Financial Indebtedness. BJCL owns 1.1 MTPA clinker plant at
Babupur, Satna, M.P. (commissioned in December, 2009) and 2.2
MTPA cement Grinding Unit at Bhilai, Chhattisgarh
(commissioned in August, 2010). The Company has signed a
definitive agreement on 31st May 2017 for the same. It is expected
that the transaction would be consummated soon.

DEBT REALIGNMENT
 The Company had requested its lenders to realign its debt in line with the
cash flow projections post divestment of cement plants as mentioned
above. As per the ANNUAL REPORT 2017 - 2018 Realignment Plan
(DRP), the total debt of the Company and JCCL (wholly owned
 subsidiary of the Company) has been segregated into sustainable debt and
unsustainable debt. While sustainable debt of JAL & JCCL is to be
retained in the Company (i.e. in JAL), the unsustainable debt would be
transferred to a new Real Estate Special Purpose Vehicle (SPV) the
scheme of demerger of which is pending sanction by NCLT, Allahabad.
The Debt Realignment Plan was approved by the Independent Evaluation
Committee (IEC) on 19th June 2017. Lenders of JAL and JCCL have
appreciated the steps taken by the Company and approved the Debt
Realignment Plan under RBI guidelines with complete majority (more
than 90%) in the meeting of Joint Lenders Forum (JLF) held on 22nd
June 2017.

 Post approval of DRP by all the lenders, the Master Restructuring

Agreement (MRA) dated 31st October 2017 was signed by all the
Lenders on various dates the last being 13th December, 2017 for the
sustainable debt approved under DRP carrying interest @9.5% p.a. and
repayable over a period of 7 years to 20 years including moratorium
period depending on the nature of loan liability.

CONCLUSION-
The company has come far well than its situation in the years 2015 and 2016
where the debts were Rs 7500 crores. Now the company has only debt of
around Rs 5500 crores.
Also it is not to be mistaken that the company is insolvent. The company is not
at all insolvent. The company is only bankrupt.
The difference is a company is insolvent when the liabilities of the company are
more than its assets i.e. liabilities>assets.
Jaiprakash Associates Ltd is bankrupt because the company’s assets are fare
more than tits liabilities and the company is facing only liquidity crunch i.e.
they do not enough liquid assets like cash so that they can easily pay off their
debts.

The company will surely revive out of their current situation in the coming
years. The progress will be slow but it will definitely be there because the
company has a huge number of subsidiaries and they are engaged in very
diverse businesses. They have various sources that will generate revenues in the
future.
Also the share prices of the stock show improvement on a daily basis. The
company has very planned its financials for the future and have also constructed
the debt restructuring plan. The time period for the payment of the loans has
been given to the company for between 7 to 20 years.

LATEST NEWS ON JAYPEE INFRATECH

With a view to wrest back control of its insolvent subsidiary Jaypee Infratech
(JIL) under the provisions of Insolvency and Bankruptcy Code (IBC), which
allows lenders to withdraw an insolvency petition, parent Jaiprakash Associates
(JAL) on Monday said it would repay creditors their entire dues and hand over
flats to homebuyers in three years.
JAL’s proposal is better than Suraksha and NBCC, who have evinced interest in
JIL. So, the committee of creditors (CoC) should consider its offer under section
12A of the IBC, JAL’s counsel said before the National Company Law
Appellate Tribunal (NCLAT).
JIL has Rs 9,800 crore outstanding to 13 banks. It is also required to complete
around 20,000 flats and hand them over to buyers.
The NCLT allows withdrawal of an application admitted under section 7,9 or 10
of the IBC with the approval of 90% voting share of the CoC. JAL does not
want liquidation of the company. It also does not want extension of the time
period for the ongoing Corporate Insolvency Resolution Process (CIRP), the
counsel said.