SC asks debt-ridden Jaypee to deposit Rs. 2,000cr by October
In relief to homebuyers, the SC last week stayed insolvency proceedings against Jaypee Infratech which has defaulted on loans worth crores. Today, it gave the company time till October 27 to deposit Rs. 2,000cr. In May, lenders had decided to take control over Jaypee's land over loan defaults of Rs. 13,000cr. How did the business giant get into such a deep mess?
The Jaypee Group was founded by Jaiprakash Gaur in 1979. It grew to gain footholds in power, real estate, hospitality and more. By 2006, business was booming. Predicting high demand, it invested heavily in bringing Formula One to India, a cricket stadium, and five townships on the Noida-Greater Noida Expresssway, among others. The goal was $15bn revenue in 2020 from under $1bn in 2005-06.
Not much later, a global financial meltdown hit India. Real estate prices fell sharply, in turn affecting all sectors. The Jaypee Group had already taken huge loans for several projects. Eg, 70% of the Rs. 8,000cr Nigrie thermal power plant in MP was from debts. Many companies suffered similarly. As of September'16, Jaypee Group's three listed companies had a debt burden of Rs. 40,157cr.
The Formula One experiment went awry: circuit owners (here, Jaypee) get money only from tickets. Among its expenses were an annual license fee of Rs. 2.23bn and Rs. 950mn in annual operating costs, apart from building costs of Rs. 25bn. With ticket prices between Rs. 20,000-2.5L, there weren't many takers in India. Despite huge losses, Jaypee couldn't exit; it had signed a five-year contract.
The Formula One investment wasn't the only bad call Jaypee made. In 2013, it decided to partner with IBM to manufacture microchips and invest Rs. 18,000cr in the first phase. However, lack of experience in the sector and a severe fund-crunch left it a non-starter.
One of Jaypee's affected projects was Wish Town in Noida. Hundreds of homebuyers, who had already invested in it, were left helpless as IDBI Bank filed an insolvency petition over Rs. 526cr loan. "We fail to understand why buyers should suffer if a real estate developer fails," asked president of Jaypee Aman Flat Buyers' Association. What now lies ahead of Jaypee remains to be seen!