SBI, banks' guarantee to defaulting Sterling Biotech owners under cloud: Report

Even as Sterling Biotech and Sterling SEZ & Infrastructure Ltd had unpaid dues of Rs 15,500 crore to a clutch of domestic banks, the State Bank of India's (SBI) loan sanction process to a subsidiary of debt-laden Sterling Biotech has come under a cloud, said a DNA Money report, adding that the SBI along with a consortium banks provided guarantees of Rs 1,298.10 crore to Sterling Biotech's overseas oil subsidiary while the company's promoters - Nitin Sandesara, Chetan Sandesara, Dipti Sandesara and Hitesh Patel-were already in the RBI's wilful defaulters' list. 

The SBI extended guarantees in the form of Standby Letter of Credit (SBLC), which the lender reportedly said was to secure the stressed domestic loan. The report said that guarantee was extended in September 2015 to Sterling Global Oil Resources Ltd (SGORPL), which is the overseas subsidiary of the Sterling group that operates an oil field in Nigeria. 

The money was to be used to set up infrastructure for undertaking exploration, production and evacuation activities in the oil business and the cash flows were to serve as a security for the domestic loan, said the report, adding that Sterling Biotech owes over Rs 7,500 crore as of now, while its sister concern, Sterling SEZ, has an outstanding dues worth Rs 8,100 crore to a consortium of banks.

After probing the loans sanctioned to Sterling, the RBI reportedly observed that the company may have round-tripped the funds to the SBI to make their accounts standard temporarily, but the guarantees helped the promoters to raise money abroad. The central bank did not respond to a detailed questionnaire sent by DNA Money despite repeated reminders, according to the report.

DNA Money report adds that the banking regulator had asked SBI to escalate the matter to the board--then headed by Arundhati Bhattacharya, to scrutinise the loan sanction process, but no action was taken by the SBI. The report said that both the regulator and the bank seem to have glossed over the issue.

The SBI's financial support to Sterling's oil subsidiaries in Nigeria was undertaken despite the country was being on the high-caution list of the lender. Sterling Biotech promoters of are being investigated for money laundering by the Enforcement Directorate, and are absconding, said the report.

Defending the bank's loan sanction, an official told DNA Money, "The guarantee was given so that the liabilities of the two stressed companies were taken over by the foreign subsidiary, Sterling Oil, which had far better security as the Nigerian oil fields were onshore. It had quality crude, with low production cost, and, thus, gave the bank better security." 

The foreign subsidiary, however, failed to generate any cash flows to the domestic firms and Sterling Biotech was reportedly admitted in the bankruptcy court.

Leading the same clutch of banks, Andhra Bank is reportedly fighting in the National Company Law Tribunal (NCLT) to withdraw the case to reach a settlement with the Sterling promoters by taking a haircut of 64% on the outstanding debt. Of the admitted claims of Rs 9,000 crore, the company is willing to repay about Rs 3,000 crore, the report added. 

The NCLT's Mumbai bench, however, raised questions over the way the lenders have agreed to settle their claims with the absconding promoters under 12A and to withdraw the insolvency plea so that they can get back the company, the report said. Notably, Section 12A of the Insolvency and Bankruptcy Code (IBC) allows one more chance to the corporate debtor to settle its defaults and get the firm out of insolvency proceedings after settling the lenders' claims.

According to the report, NCLT has ordered the company's liquidation, while National Company Law Appellate Tribunal (NCLAT) has stayed the liquidation order on June 7, saying it is a going concern. The NCLAT's next hearing will take place on July 16.