Banks have rejected the takeover bids by Numetal — a venture formed by Russian lender VTB Bank and Rewant Ruia — and LN Mittal’s ArcelorMittal for Essar Steel, saying that both the bidders are ineligible under the Insolvency and Bankruptcy Code (IBC) which categorically stated that promoters of defaulting companies are not allowed to bid unless he or she repays all pending loans before submitting the resolution plan.
The committee of creditors (CoC) of Essar Steel which met here on Wednesday decided to reject both the bids and decided to allow a second round of bidding for the debt-laden steel company on April 2. Numetal and ArcelorMittal which were the only two bidders for Essar Steel submitted their bids on February 12 and both were challenging the eligibility of the other party to bid for the company. Both were declared ineligible by the lenders under Section 29 A of the amended IBC.
ArcelorMittal — which has teamed up with Nippon Steel & Sumitomo Metal Corp to bid for Essar Steel — has been found ineligible in view of its joint venture with Uttam Galva, which is also at the National Company Law Tribunal for asset resolution. ArcelorMittal was involved with Uttam Galva when it was declared a defaulter. Numetal’s bid was rejected as one of the promoters of the special purpose vehicle is Rewant Ruia, the son of an Essar Group promoter Ravi Ruia, one of the original promoters of Essar Steel. “If these companies delink their connection with the promoters or standardise their loans they can bid again in the second round of bidding,” said an official, adding that the proposed fresh auction will enable ArcelorMittal and Numetal to revise their bids in line with Section 29 A of IBC. This means Ruia may have to exit from Numetal and ArcelorMittal will have to settle the dues of Uttam Galva Steel.
The 270-day timeframe within which the insolvency exercise has to be completed ends on April 28. After this, Essar Steel will have to be liquidated if a resolution plan does not work out. The two bids were evaluated by Resolution Professional (RP) Satish Kumar Gupta, along with risk advisory Grant Thornton and law firm Cyril Amarchand Mangaldas.
Meanwhile, Numetal filed an application before the NCLT, Ahmedabad seeking a declaration that Numetal is eligible to submit a resolution plan for Essar Steel on March 20. “Numetal apprehends that full facts submitted by Numetal for determination of its eligibility to submit a Resolution Plan have not been appropriately assessed. Accordingly, in the application, all necessary facts for determining the eligibility of Numetal have been placed before the NCLT for an objective assessment,” it said.
NCLT has issued a notice to the Committee of Creditors through the Resolution Professional. “NCLT also observed that any decision taken or resolution passed by the COC in the meeting on March 21, 2018, would be subject to the outcome of the application. The next date of hearing of the application is April 4, 2018, as per the attendance-cum-order sheet of the hearing of Ahmedabad Bench of NCLT,” Numetal said.
Essar Steel, which has a steel-making capacity of 9.7 million tonnes per annum, owes more than Rs 45,000 crore to lenders, of which Rs 31,671 crore was classified by banks as non-performing assets as of March 31, 2016. SBI leads a consortium of 22 lenders that accounts for 93 per cent of the company’s debt. Essar Steel also owes Standard Chartered Bank close to Rs 3,500 crore.
However, financial claims received by the resolution professional (RP) for Essar Steel from lenders, operational creditors and employees had crossed Rs 77,770 crore in October. Of this, the RP had till October 18, 2017 acknowledged Rs 50,000 crore, according to a statement on the company’s website. The biggest chunk of claims — Rs 54,851 crore — was made by 49 financial creditors while operational creditors had sought Rs 22,914 crore. Employees of the company were looking to get Rs 20 crore. Among banks, State Bank of India (SBI) had claimed an amount of Rs 13,652.8 crore while IDBI Bank was looking to recover for Rs 5,177.7 crore.