AM Green Ammonia (India) Private Limited, a subsidiary of the Greenko Group, is set to acquire the urea and micro-irrigation divisions of Nagarjuna Fertilizers and Chemicals Ltd (NFCL) through a slump sale transaction, as confirmed in their stock exchange filing. The deal is valued at Rs 1,700 crore (Rs 17 billion).
“The slump sale of Ammonia/Urea and Ml businesses along with related assets and liabilities to AM Green Ammonia (India) Private Limited (purchaser company), for a gross consideration of Rs 1365 Crores in cash and 19.7o/o in equity in the purchaser’s company (to be held by NFCL) as part of the transaction. With a call option available to the purchaser/ nominee on 19.7% equity to be exercised by the purchaser within one year for Rs 335 crores with premium of 12% per Annum. This transaction is subject to terms and conditions precedents (including lenders approval and recognition and reimbursement of energy claims submitted by the company by the Department of Fertilizers, Govt. of India). It is agreed to distribute Urea produced from the transferred Urea Business in India by Nagarjuna Fertilizers and Chemicals Limited (NFCL) on commercially reasonable terms (as per Govt. regulations). An agreement to the effect would be entered into along with the slump sale agreements,” the Board of Directors of NFCL at their Meeting held on August 14, 2023, considered, approved, and recommended.
The Board also recommended that “one Time Settlement (OTS) as debt resolution for the amount of Rs 1500 crores to be paid through proceeds of slump sale of Ammonia/Urea and Micro Irrigation business and sale of other non-core assets.
According to the filing, NFCL underwent financial stress on account of GAIL pipeline accident. As the company did not receive compensation from insurance and GAIL for the losses caused the company approached the lenders for working capital limits and a working capital term loan as part of the Corrective Action Plan (CAP) to revive the company. The lenders assessed and approved CAP with funding in 2015 (basis the management turn around track record, consistent performance with the lenders for more than a decade). The company could not be revived as lenders did not release the funding assessed for CAP in 2015 in violation of RBI statutory guidelines.
Due to the non-availability of CAP funding the company’s revenues were generated only from low-margin controlled Urea business which did not provide any margins for servicing debt. The company re-approached lenders in 2017 and again in 2018 for a long-term debt resolution to overcome the financial stress (on account of GAIL accident and non-implementation of CAP) and has submitted several debt resolution plans based on lenders advice/inputs.
Despite achieving cash profit during the 1st quarter of 2018 and repaying all the loans outstanding in April 2018, based on banks commitment to continue working capital for Urea business from available limits (till the completion of the debt resolution) the lenders unilaterally froze 100 per cent of the working capital limits and adjusted market receivables of Rs. 700 plus Crores towards loan outstanding in 2018-19 (before approving holding on operations in November 2018) leading to stoppage of plants, increases in losses and unsustainable loans.
It may be noted that fertilizer industry especially the Urea Sector is highly regulated with little to no margins for depreciated units. The company is currently not getting reimbursed the cost of energy leading to cash losses at EBIDTA level.
The company submitted various debt resolution plans since 2017. In 2020, the Secured Lenders (lDBl Bank, SBl, lCICI Bank, PNB, UCO Bank, Bol, IOB), had issued notice to NFCL under the provisions of the IBC/NCLT. The company had objected to the bank applications, while parallelly persuading the lenders to approve at an amicable settlement.
An operational creditor (KeytradeAG) in the meanwhile filed a petition with the Honourable NCLT against the company and NFCL was admitted to IBC on 27th August 202’1. The promoter company Amlika Mercantile Private Limited (AMPL) approached Honourable NCLAT which was pleased to provide a stay on the order of the NCLT which is currently in force.
In 2022 the company approached the Department of Fertilisers (Govt of India) to regroup the company’s plants with similar plants or recognize and reimburse the energy consumption since January 2019, which is under consideration.
In 2022 the lenders had initiated the sale of debt of the company upon which Asset Care and Reconstruction Enterprise Limited (ACRE) an Asset Reconstruction Company (ARC), won the bid and purchased the debt of the company on 28th March, 2023, replacing the erstwhile lenders of the company.
ACRE has issued the demand notice under section 13(2) of the SARFAESI ACT 20.05.2023. The company while objecting to the ACRE claim requested an opportunity to submit a resolution plan. Without prejudice to their rights under SARFAESI, ACRE advised the company to submit a resolution plan.
NFCL after a lot of effort identified a purchaser AM Green Ammonia (India) Private Limited which is willing to invest in the Urea and micro irrigation business by way of slump sale on a going concern basis. This will allow the company to realize fair value for its business (in the interest of all stakeholders) and also allow lender/s to release better value as compared to the process under the provisions of SARFAESI ACT/IBC.