Standard Chartered challenges ArcelorMittal’s Essar Steel bid again3 min read . Updated: 26 Nov 2018, 08:34 PM IST
Standard Chartered has alleged that Essar Steel's lenders illegally sought a discriminatory resolution plan with ArcelorMittal outside the purview of the Insolvency and Bankruptcy Code
Mumbai: After filing a caveat petition in late October against ArcelorMittal SA’s resolution plan for Essar Steel which left Standard Chartered left out in the cold, the London-based bank has approached the Ahmedabad bench of the National Company Law Tribunal (NCLT) again, alleging that the committee of creditors has illegally sought a discriminatory resolution plan outside the purview of the Insolvency and Bankruptcy Code, which places its own interests above those of others.
Standard Chartered filed an interlocutory petition last Wednesday against the CoC in the Essar Steel resolution case alleging discrimination by the CoC. Interlocutory petitions are filed to offer additional information to a court in an ongoing litigation or to request urgent relief.
According to the petition, a copy of which Mint has reviewed, Standard Chartered said that had advanced a loan of $500 million with a corporate guarantee to an Essar Steel subsidiary in 2010 so that the latter could secure its long-term coal requirement. This loan was later refinanced to $413 million along with a pledge on shares of Essar Steel and an extended repayment period. When Essar Steel failed to repay this and other loans but before the corporate resolution process began, Standard Chartered said that the consortium of lenders opposed its inclusion to the joint lenders’ forum although it was a secured lender.
Once the committee of creditors was formed under the IBC, the resolution professional had verified Standard Chartered’s outstanding claim as ₹ 3,487.09 crore and classified the bank as a secured financial creditor. However, in the final payout that ArcelorMittal has offered in its bid for Essar Steel, Standard Chartered will only be repaid ₹ 60.71 crore.
Standard Chartered’s petition alleges that some members of the CoC worked to place their own interests above that of others during the resolution process. Some members of the CoC formed a core committee which would negotiate with ArcelorMittal, even though IBC law does not provide for the formation of such a committee. These included State Bank of India, ICICI Bank Ltd, IDBI Bank Ltd and Edelweiss ARC.
The petition says that the core committee within the CoC entered into negotiations with ArcelorMittal with the “dishonest intention" of excluding Standard Chartered and its request to be part of such a core committee given its status as a secured lender was denied.
Standard Chartered also pointed out that the final resolution plan by ArcelorMittal was not discussed by all members of the CoC since there was no meeting of the CoC after 23 October, when the final plan was received.
In addition, ArcelorMittal’s final resolution plan offered to pay ₹ 42,000 crore upfront to secured financial creditors representing 100% of the principal outstanding, which, Standard Chartered argued, should mean that it was supposed to receive a minimum of ₹ 2,646.05 crore (which is the principal amount in the ₹ 3,487 crore that is due to it). However, in the final recommended payout that won the CoC’s approval, AccelorMittal had left it to the core committee’s discretion how the financial package would be paid out, which is against the provisions of the IBC, Standard Chartered alleged. Other lenders themselves took a bigger share of the amount whereby they would receive 100% of the principal amount and 40% of the interest amount.
“In this situation, the only relevant and valid basis for distributing the amount offered would be to pay the principal amount of the debt offered to each secured financial creditor. Any other mode of distribution would be illegal, arbitrary, perverse and discriminatory," the petition read.
A spokesperson for ArcelorMittal said: “We have followed the IBC process in good faith since first submitting our expression of interest in 2017. The committee of creditors has clearly decided ArcelorMittal’s plan is in the best interests of Essar Steel and we are confident that the process will be implemented correctly and according to the law."
With this, Standard Chartered will join a host of other creditors unhappy with the ArcelorMittal takeover of bankrupt Essar Steel. Last week, state-owned natural gas utility GAIL (India) Ltd and Gujarat government’s Gujarat Energy Transmission Corp. (Getco) filed interlocutory petitions at the Ahmedabad NCLT against ArcelorMittal’s resolution plan. These two, along with other operational creditors, have joint claims of ₹ 1,600 crore.
ArcelorMittal’s Essar Steel bid offers an upfront payment of ₹ 42,000 crore towards debt resolution and ₹ 8,000 crore towards capital infusion into Essar Steel, while the Ruia-promoted Essar Steel Asia Holdings has offered ₹ 54,389 crore to settle the claims of all financial and operational creditors in full.
On 25 October, more than 92% of Essar Steel’s creditors voted in favour of ArcelorMittal as it had placed the highest bid for the stressed assets.