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The Singapore-based trust that owns a 25 per cent stake in Numetal, the bidder for Essar Steel, has offered to sell its stake to other shareholders of Numetal if the trust is found ineligible to participate in the bid.
Rewant Ruia, son of Essar group promoter Ravi Ruia, is the beneficiary of the trust. The offer to exit from Numetal has been made in the bid proposal submitted by Numetal, according to a source close to the development.
Numetal and ArcelorMittal are the two companies to submit bids for Essar Steel. The 10 million tonne per annum steel company is facing proceedings under the Insolvency and Bankruptcy Code (IBC) after the company defaulted on loans of Rs 440 billion.
The results of the bids are expected by next Monday.
Lenders had earlier raised objections to the offers made by both Numetal and ArcelorMittal. This was because ArcelorMittal Netherlands NV held a 29 per cent stake in Uttam Galva Steels, a non-performing asset (NPA).
Besides, ArcelorMittal’s promoter, L N Mittal, personally held a 33 per cent stake in KSS of Kazakhstan, which, in turn, held a 100 per cent stake in KSS Petron, another NPA in India. Both ArcelorMittal and Mittal sold their stakes just before the bid deadline closed.
ArcelorMittal, however, said its bid was eligible and Mittal lobbied with the government last week on its offer.
On the other hand, there were objections to Numetal’s offer on the grounds that the Ruias were promoters of Essar Steel when it turned into an NPA. And hence, Ruia as a trust beneficiary will not clear the eligibility test.
With the offer of the Ruias to sell their minority stake in Numetal to other shareholders, the chances of the Numetal offer being accepted are higher. But a final decision will be made by legal advisor Cyril Amarchand Mangaldas to the resolution professional.
The government had introduced Section 29A in the IBC to exclude all defaulting promoters and those connected to them. As Finance Minister Arun Jaitley explained the rationale later during a discussion on the amendment in the Rajya Sabha, if the government did not have such a broad exclusion list then the same people or related persons who ran the company to the ground would come back to buy the stressed asset at a 40-60 per cent discount to the debt taken from Indian banks.
According to Section 29A if a person is acting jointly or in concert with a person meeting any of the above criteria then the person will stand disqualified. However, the person will be eligible to submit a resolution plan if such a person makes payment of all overdue amounts with interest and charges relating to the non-performing asset (NPA) accounts before the submission of the plan.
According to legal opinion taken by Numetal from a former Supreme Court judge, the trust’s 25 per cent stake in the company will not attract provisions of Section 29A as the Ruias will not have any management control or directors on the board of Numetal. This opinion is also included in the Numetal bid document.