Kolkata: Lenders to Electrosteel Steels Ltd are staring at an over 50% haircut even as they have picked Vedanta Ltd as the top bidder for the assets amid a legal challenge to the bid’s validity.

Vedanta has offered to pay a little more than Rs5,000 crore for the assets of the distressed steelmaker, according to two people familiar with the bids, who asked not to be named. It is “considerably higher" than the second highest bid from Tata Steel Ltd, said one of them.

Electrosteel Steels, which is setting up a 2.5 million tonne integrated steel plant near Bokaro town, owes its lenders Rs11,000 crore.

Dhaivat Anjaria, the resolution professional or the administrator of the company, declined to comment.

All the bids are not similar in nature, so a headline number could be misleading, cautioned the people cited above. The highest bid was selected by a committee of creditors through a scoring system combining various parameters, they added.

“Banks agreeing to take a substantial haircut is predictable," said a consultant who has advised lenders on Electrosteel Steels, asking not to be named.

The erstwhile management of Electrosteel Steels, however, has always held lenders responsible for the current woes. The management had said last year that if a fresh line of credit of Rs1,300 crore was extended in 2013, the company could have been turned around.

Meanwhile, the two highest bids for Electrosteel have been challenged by Renaissance Steel India Pvt. Ltd, which has alleged in two separate petitions to the Kolkata bench of the National Company Law Tribunal (NCLT) that Vedanta and Tata Steel are ineligible to bid under the Insolvency and Bankruptcy Code (IBC).

With the committee of creditors deciding on Thursday to accept Vedanta’s bid, rejecting the legal challenge to its validity, Renaissance Steel will next week move the Kolkata bench of the NCLT seeking the tribunal’s scrutiny of its allegations, said lawyers briefed on the matter. They, too, asked not to be identified.

Abhishek Dalmia-led Renaissance Steel has alleged that affiliates of both Vedanta and Tata Steel have been found guilty of criminal offences that are punishable with two or more years in jail.

Under section 29A of the IBC, companies or individuals convicted of such offences are barred from bidding for stressed assets.

Renaissance Steel has alleged that Tata Steel UK Ltd, a unit of the Indian steelmaker, had pleaded guilty several times to violating the UK Health and Safety at Work Act. The UK subsidiary faced multiple probes and was convicted each time. Though the offences were punishable with two years in jail, the UK authorities chose to impose fines, Renaissance Steel has claimed.

Similarly, against Vedanta, Renaissance Steel has alleged that a subsidiary of its parent Vedanta Resources Plc. had violated pollution norms in Zambia. Vedanta Resources-controlled Konkola Copper Mines had, in 2010, pleaded guilty to four charges brought against it by the Zambian authorities for violation of pollution norms. Some of these offences were punishable with three years in jail, according to Renaissance Steel.

Time is running out for the administrator to finalize a resolution plan. He has a little over two weeks to get the tribunal’s approval for the plan, failing which the company will go into liquidation. The IBC allows 270 days for resolution of insolvency. Insolvency resolution at Electrosteel Steels started in July last year.

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