State Bank sells distressed KSK Mahanadi loans to Aditya Birla ARC for Rs 1,622 crore

State Bank of India (SBI) on Friday sold distressed KSK Mahanadi Power's ₹3,815-crore outstanding loans to Aditya Birla Asset Reconstruction Co for ₹1,622 crore, a move that would help the bank shore up its earnings in the second quarter, said two people aware of the development.

This would be the single-largest distressed loan sale on an upfront payment basis by any bank, equating to a recovery of 42% for the bank. Aditya Birla ARC's bid was supported by its joint venture partner, Varde Partners.

So far, most big-ticket distressed loan sales were structured deals involving part payment in the form of security receipts that would be redeemed upon recovery from defaulting borrowers.

Aditya Birla ARC did not respond to the request for comment.

SBI's decision to sell KSK Mahanadi loans is an example of the extent to which banks are willing to avoid the uncertainty of the Insolvency and Bankruptcy Code (IBC)-driven resolution process. The company has been undergoing insolvency proceedings for over two and a half years.

Vedanta, Adani Power, Naveen Jindal's Jindal Power, Dharampal Jindal's Jindal Polymer, Power Finance Corporation and iLabs India Special Situation Fund were among the applicants that submitted expressions of interest to acquire it.

However, a series of litigation delayed the resolution process. The National Company Law Appellate Tribunal (NCLAT) has stayed the resolution process following a plea by ASREC, an ARC and a lender, that optimal recovery in KSK Mahanadi is possible only if it undergoes group resolution. Two ancillary companies - KSK Mahanadi Water, which operates a water pipeline to the power plant, and Raigarh Champa Rail, which carries raw material to the plant - are separately undergoing insolvency proceedings. NCLAT has listed the matter for hearing on August 22.

Aditya Birla ARC had offered ₹1,544 crore to SBI in an uncontested Swiss challenge auction held by the bank in June. "Despite no other counter bid, SBI faltered in declaring Aditya Birla ARC as winning bidder," said one of the people cited above. "Instead, the bank pursued the ARC to improve the offer," the same person said.

Following a series of negotiations between the bank and the ARC on pricing, the deal closed on Friday, the people said.