Lenders fail to attach Sterling Biotech's overseas assets

Banks have failed to take adequate safeguards to protect the loans extended to Sterling Biotech by attaching the oil assets of the promoters in Nigeria.

Instead of carrying out a prior examination on how this could be done by discussing with the Nigerian oil regulator, senior bank officials made a visit to the country years after issuing two standby letters of credit (SBLC) worth $230 million (Rs 1,500 crore) to the promoters Nitin Jayantilal Sandesara and Chetan Kumar Jayantilal Sandesara, who are now absconding, to raise money overseas.

Despite the officials travelling to Nigeria from September 17 to 23, 2017 to attach the oil assets of the Sandesaras, no action could be enforced. Initially, the agreement was that the overseas oil company, Sterling Oil Exploration & Energy Production Company Ltd (SEEPCO), would take responsibility for the unpaid loans of Sterling Biotech's Indian companies, but the promoters failed to repay the loans and were classified as wilful defaulters.

The Sandesaras are defaulters of Rs 15,600 crore taken on behalf of their two Indian companies, Sterling Biotech and Sterling SEZ & Infra. While Sterling Biotech owes Rs 7,500 crore, its sister concern Sterling SEZ & Infra owes Rs 8,100 crore. Despite these loans being unpaid to the consortium of lenders led by the State Bank of India (SBI), two guarantees were offered to the group's foreign outfit, SEEPCO, so that it could borrow from overseas.

"The banker group that went to Nigeria reported back that recovery of loans from the oil field assets could be done only if the Nigerian oil regulator agreed to substitute SEEPCO with new owners," said one of the bankers. However, the banks failed to reassign SEEPCO's participating interest right to any other investor. No effort was made to find another investor or use the good offices of the government of India for taking charge of interests in the oil fields. No visit to Nigeria was made before sanctioning the two SBLCs, the source said.

The first SBLC worth $130 million was issued on March 2014 while the second one of $100 million was approved in September 2015. SBI had fronted the guarantees on behalf of the other banks despite two of its loans to Sterling turning into non-performing asset (NPA) and the promoters being classified as wilful defaulters.

A detailed questionnaire sent to SBI and Reserve Bank of India (RBI) failed to elicit any response.

Andhra Bank, which is now leading the lender consortium, had initially referred Sterling Biotech to the National Company Law Tribunal (NCLT) on June 11, 2018. But later lenders of Sterling Biotech voted with a 90.32% majority to pull the case out of the NCLT. In March this year, the creditors told the court that they would withdraw the case and have a one-time settlement (OTS) with the promoters. However, they refused to give the details of the OTS to the resolution professional (RP) saying that they would inform the court at the appropriate time.

A source told DNA that the absconding promoters made an offer of Rs 5,500 crore, which is 40% of the total claims of Rs 15,000 crore of the banks.

Andhra Bank has petitioned through its lawyers AZB Partners and Nishit Dhruva from MDP and Partners to withdraw the case from the NCLT so that banks could settle part of the debt with a representative, Farad Darruwala, of the promoters. However, the NCLT court noted that in the OTS there is no mention whether Daruwala is authorised by the promoters, the Sandesaras.