Distressed assets up for grabs through the Insolvency and Banking Code (IBC) have captured the attention of a host of parties, including large business houses, multinational corporations, private equity players, and even senior employees of some companies.
Essar Steel has drawn bids from Luxembourg’s ArcelorMittal and Numetal, a company in which Russia’s VTB Bank holds a majority stake, and in which the Essar promoters have a minority role. But most foreign players have dropped out of other bankruptcy bids, leaving domestic companies in the race.
The expression of interest phase saw a number of bidders from across geographies. For the stressed assets of Bhushan Steel, one of the larger makers of automobile-grade steel in the country, whose liquidation value was higher than Rs 150 billion, bids were expected at a premium. However, from the original list of 10 potential bidders that included US-based Oaktree Capital, Lone Star Funds and ArcelorMittal of Luxembourg, only JSW Steel and Tata Steel emerged as serious bidders.
Electrosteel Steels has not seen a foreign player express interest so far. In the case of Essar Steel, potential buyers, which originally included South Korean Posco, Swedish SSAB and Japan’s Nippon Steel and Sumitomo Metal Corporation (Japan) have refrained from bidding.
Compiled by BS Research BureauBinani Cement had 22 suitors, including French firm Lafarge, Dublin-based CRH, Holcim of Switzerland and Heidelberg Cement of Germany. Six made it to the first round. Heidelberg, which put in a preliminary bid, later withdrew. None of the other global players has remained in the race.
In the case of Bhushan Steel, ArcelorMittal’s executives had camped in New Delhi before taking a call not to bid. Then, Japan’s JFE Steel, which was to bid jointly with JSW Steel, pulled out earlier. South Korean major Posco was expected to make a move but stayed away. According to sources close to the deal, Lanco Infratech, a distressed power player, had expected to draw interest from Italian multinational Enel. But that did not materialise either.
This has raised the question, why are foreign players not going the distance?
Shantanu Nalavadi, managing director of India Resurgence Fund, set up by Piramal Group and Bain Capital Credit, said: “If on a Thursday a more detailed set of guidelines for evaluation of bids is put up, and bidders are expected to change strategy, it becomes difficult for foreign boards or an overseas investment committee to adhere to timelines and rebid the following week.”
It is extremely tough for foreign investors to call a meeting at such short notice and seek approvals on critical amendments to the bid. The challenges, Nalavadi said, “Increase multi-fold if the bidder is a consortium with multiple partners”.
A banker who declined to be named said when companies raised the question of how certain laws pertaining to these distressed assets worked out, the answer they kept receiving was “it will evolve in time”. The information quality was not optimum and the asset sites, in some cases, remained inaccessible, making bids difficult to execute.
Shardul Shroff, executive chairman of Shardul Amarchand Mangaldas, who was also on the 14-member committee set up by the Insolvency and Bankruptcy Board of India to review the suggestions in the process, said the lack of interest among foreign firms was also due to the timelines. “The insolvency resolution professional (IRP) should allow for at least a month between submission of qualification and evaluation criteria, so that bidders can ascertain their strategies, especially if they are foreign players.”
A formal prospectus or request for proposal has to be issued by the IRPs.