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If Aurora Enterprises, owned by a trust controlled by Rewant Ruia, had become a liability for Numetal during the first round of bidding for Essar Steel, dropping the firm may put the Russian company’s bid on shaky ground, if ArcelorMittal's arguments hold water before the Ahmedabad bench of the National Company Law Tribunal (NCLT).
Aurora Enterprises had to be dropped to make Numetal eligible under Section 29A of the Insolvency and Bankruptcy Code (IBC). However, Aurora Enterprises was one of the shareholders when Numetal submitted the expression of interest for Essar Steel. “It is Numetal and not Essar Communications or Aurora Enterprises, which had submitted the expression of interest in response to the advertisement issued by the resolution professional of Essar Steel,” Numetal said.
Sources close to ArcelorMittal said Essar Communications and Aurora Enterprises were the only two constituents of Numetal at the time of submission of expression of interest. According to the petition filed by ArcelorMittal with the NCLT, the shareholding structure of the original applicant was: 26.1 per cent was held by Essar Communications, owned by Virgo Trust and Triton Trust, the beneficiaries of which were firms owned by the members of the Ruia family; 73.9 per cent was held by Aurora Enterprises, owned by the Prisma Trust, the beneficiaries of which are a company wholly owned by Rewant Ruia and general charities.
Legal sources close to ArcelorMittal said the character of Aurora Enterprises changed from the time of filing of the expression of interest and submission of resolution plan with no board seat and minority rights, and therefore completely changed the character of interest that was initially filed. “That point has become more relevant for the second bid. The new bidder has no connection with the expression of interest and for the second time, bids have been invited explicitly from entities that have submitted expressions of interest," they said.
These points are likely to be raised by ArcelorMittal in NCLT on Wednesday where Numetal and the LN Mittal-led company are challenging the decision to cancel their resolution application in the first round on grounds of eligibility.
Source: CompanyNumetal's shareholders for the first bid included Aurora Enterprises, VTB Bank PJSC, Tyazhpromexport and Indo International Trading. According to ArcelorMittal's petition, at the time of submission of its resolution plan on February 12, Aurora Enterprises reduced its shareholding to 25 per cent and three new shareholders were inducted, including Crinium Bay Holdings Ltd, ultimately held by VTB Bank PJSC, which held around 40 per cent of the shares of the applicant, Indo International Trading FZCO, which held 25.1 per cent of the shares and JSC VO Tyazhpromexport, which held around 9.9 per cent of the shares.
For the rebid on Monday, Aurora Enterprises was dropped. Sources close to Numetal said that Aurora Enterprises' stake was divided among existing shareholders VTB Bank PJSC, Tyazhpromexport, Indo International Trading. JSW entered into a separate partnership arrangement with Numetal as an investor.
In its argument during the submission of the first bid, the petition filed by ArcelorMittal said the applicant, Numetal, could be regarded as a consortium of VTB, Indo, TPE and Rewant Ruia, who were acting "jointly" for the purposes of submission of the resolution plan through the vehicle of the applicant.
Hence it concluded that since Rewant Ruia was ineligible for submitting a resolution plan under Section 29A, his disqualification attached squarely to other members of the consortium.
The Arcelor petition also mentions that VTB is ineligible under Section 29A since it has been prohibited from “trading in securities” and “accessing the securities markets” by competent regulators in the US. VTB executives had earlier told Business Standard that sanctions apply to long-term financing and are completely irrelevant to acquisitions or lending by VTB. "We note that VTB Capital plc in London is exempt from the European Union Sanctions," it had said.
On the futures-exchange transactions, investigated by the US Commodity Futures Trading Commission, VTB had said they were executed by VTB in good faith and with the belief that they were in line with all the rules of the Chicago Mercantile Exchange.
“About a year ago the commission filed a lawsuit against one of the western banks charging it with serious claims in relation to several internal trades. Most likely, this precedent made the commission review its practices of executing this kind of deals at the futures exchange and consequently impose a ban on address operation within one group. This ban has applied to all the banks working in the US," VTB had said.