ArcelorMittal wins, but Ruias’ repayment offer will test IBC

Mumbai: The Ruia family has made a last-ditch effort to avert losing its flagship company Essar Steel Ltd to Laksmi Mittal’s ArcelorMittal SA.

In a new twist to the takeover contest for debt-ridden Essar Steel, the Ruias have offered to pay ₹ 54,389 crore to the lenders, provided they withdraw an insolvency petition against the company.

The Ruias are seeking withdrawal of the petition under section 12A of the insolvency and bankruptcy code (IBC) that allows withdrawal of insolvency proceedings subject to approval by 90% of the creditors and the National Company Law Tribunal (NCLT). The offer was made on a day when more than 92% of creditors to Essar Steel voted in favour of handing over the company to ArcelorMittal Netherlands BV for ₹ 42,000 crore as upfront payment and ₹ 8,000 as future capital infusion.

The voting outcome was declared on Thursday afternoon. If creditors decide to ignore the offer by the promoters of Essar Steel, ArcelorMittal’s plan will be submitted before NCLT for approval, paving the way for the world’s largest steel maker to gain a foothold in India.

The last-minute offer by the Ruias is, meanwhile, bound to test the IBC process and the relevance of section 12A that was introduced in June.

The proposal was submitted to the committee of creditors (CoC) on Thursday. According to the proposal, the promoters agreed to make an upfront cash payment of ₹ 47,507 crore to all creditors, including ₹ 45,559 crore to the senior secured financial creditors, Essar Group said in a press release. The remainder of ₹ 54,389 crore will be paid to subordinate secured creditors, unsecured lenders, operational creditors and claims from employees.NextMAds

Essar Group said its proposal would ensure “maximum recovery for the lenders”, against ArcelorMittal’s plan, which “does not provide for meaningful payment to operational and other unsecured creditors”.

“Even after the onset of the insolvency resolution process, the shareholders of Essar Steel had made offers to settle the debt of the company, but the lenders did not accept those offers. We believe our current proposal will provide 100% recovery to secured creditors and lenders, and maximum recovery for unsecured creditors,” said Essar Steel director Prashant Ruia. “This is well in excess of that offered in the proposal under consideration, and is in line with value maximization, which is the underlying principle of the IBC process.”

Meanwhile, ArcelorMittal is of the view that applicability of section 12A will be in violation of IBC regulations. “Our understanding is that the IBC’s section 12A does not apply to the resolution process of Essar Steel. Section 12A clearly states that any application to withdraw must be submitted prior to issuance of the invitation for expressions of interest and must be accompanied by a bank guarantee for the specified amounts. The expressions of interest for Essar Steel were issued in October 2017,” said an ArcelorMittal spokesperson in an emailed response. “We expect the process to continue as per the clear terms of the IBC.”thirdMAds

A senior Essar official, who declined to be named, however, said that since section 12A was introduced only in June this year, all ongoing cases should be given an opportunity to be withdrawn from insolvency proceedings despite being beyond the expression-of-interest stage.

Even as Essar Group makes a final attempt to regain control of the steel asset with a capacity of 10 million tonnes, legal experts say the effort may not pay off. “The Supreme Court had given two weeks’ time to repay the dues, which is over, and at this stage I don’t think anything can change,” said Shardul Shroff, executive chairman of law firm Shardul Amarchand Mangaldas, adding that it was his personal view. Arcelor had already paid dues to the lenders as per the requirement, he added.

Essar Group has not disclosed if the firm has received a letter of commitment from any bank to repay the dues of Essar Steel. Two bankers close to the development said ArcelorMittal had received a letter of commitment from French lender Credit Agricole for the acquisition. It could not be ascertained immediately if Credit Agricole has further sold its exposure to other banks. Credit Agricole did not respond to an email.fourthMAds

Essar Steel has a debt of more than ₹ 49,000 crore.

A banker involved in the insolvency proceedings said if Essar could pay the money earlier, it should have done so before the deadline lapsed and that it would be difficult to reverse the process.

The battle for Essar Steel, a 10 million tonne fully integrated steel plant in the port city of Hazira in Gujarat, has been long drawn out, with numerous rounds of bidding and buyers accusing each other of non-compliance with bankruptcy rules till the Supreme Court stepped in and pushed for a resolution.

Earlier this month, both Numetal Mauritius, which had earlier bid for Essar Steel, and ArcelorMittal were asked to repay dues to related entities within a fortnight to become eligible for the bidding process.

Numetal was asked to clear dues of Essar Steel, as well as other non-performing assets Essar Group entities that were more than one year old. The company was declared ineligible under Section 29A of the IBC when it failed to pay the dues. Under Section 29A, bidders cannot be connected to other defaulting entities.

ArcelorMittal paid ₹ 7,469 crore to clear its dues with Uttam Galva Steels and KSS Petron, two companies in which Mittal had been a promoter.sixthMAds

“In addition, ArcelorMittal will also shell out around ₹ 200 crore to repay some of the operational creditors,” said the second banker cited above.

Russia’s VTB Bank, the largest stakeholder in the Numetal Mauritius consortium, is also separately pursuing an appeal in the Supreme Court, seeking permission to make another bid for Essar Steel, either of its own accord or along with a new technical partner.