Lenders seek EoI to sell Tuticorin Coal Terminal under IBC

Lenders to Tuticorin Coal Terminal Pvt Ltd have sought expression of interest to sell the bankrupt facility run by ALBA Asia Pvt Ltd at central government-owned VO Chidambaranar Port Trust (VOCPT), making it the first instance of a public-private-partnership (PPP) concession in a major port trust to be auctioned under the Insolvency and Bankruptcy Code (IBC).

The 7 mt-capacity terminal is promoted by ALBA Asia with 74 per cent stake and LDA holding 26 per cent, effectively giving LDA 63 per cent stake in the facility.

ALBA Asia is the Indian joint venture dry bulk port operating company controlled by French shipping group Louis Dreyfus Armateurs SAS (LDA).

Tuticorin Coal Terminal stopped operations in June 2018, a year after opening the facility in June 2017.

The thermal coal and non-coking coal handling terminal was hit by the closure of some thermal power plants in the vicinity, for which the facility was built, reducing the third party (non-TANGEDCO) coal cargo at the port to 3 mt from 13 mt a few years ago.

Experts say that the terminal also turned unviable because of the steep revenue percentage it had agreed to share with the VOC Port Trust to win the deal. The operator placed the highest revenue share price bid of 52.17 per cent to emerge the successful bidder for the project.

A bankruptcy court in Mumbai has initiated insolvency proceedings against Tuticorin Coal Terminal after Bank of India filed a petition seeking to recover unpaid dues of ₹90.87 crore. The terminal operator owes some ₹355.79 crore to a clutch of seven banks led by Bank of India.

The National Company Law Tribunal (NCLT) has named Dhiren Shah to oversee the resolution process.

Potential bidders have time until September 23 to file their expression of interest.

Experts’ take

Port experts say that concession agreements for port projects at major port trusts awarded under the PPP route cannot be sold under IBC.

“In the telecom spectrum case, the Supreme Court has said the NCLT will decide whether license of spectrum can be sold under IBC or not. The same thing will apply to port concession agreements - whether a concession agreement can be sold under IBC,” said a port industry executive tracking the issue.

The concession agreement signed between VOCPT and Tuticorin Coal Terminal cannot be sold without the approval of the port trust, he stated.

When a port operating company goes into insolvency, its assets will have to be sold to recover lenders dues, which in this case is the concession agreement.

“VOCPT has ownership over land, water-front and all the structures at the facility. The port trust will have to terminate the license because there is no provision in the concession agreement whereby VOCPT will allow the concession itself to be transferred, which is the case with the proposed sale under IBC. How can anybody transfer a concession without the approval of VOCPT,” he said.

Getting a new entity to run the terminal is also a tough task, he said.

Even under the Substitution Agreement, if the lenders pick a new party to run the terminal due to loan repayment default by the original developer, the new operator will require security clearance and he has to clear all the dues of VOCPT.

Further, VOCPT’s right to terminate the concession agreement due to default by Tuticorin Coal Terminal cannot be taken away from it and the new party has to step into the shoes of Tuticorin Coal Terminal, which means he has to pay the same (steep) revenue share to VOCPT.

“With all these conditions, I doubt if anybody is going to bid for the terminal,” he added.