Insolvency resolution: NCLAT order on Essar Steel this week, say bankers

With the National Company Law Appellate Tribunal (NCLAT) order on Essar Steel expected this week, bankers said they were hoping Numetal, ArcelorMittal, and Vedanta to revise their bids upwards — considering the rupee’s fall against the US dollar has boosted their bidding power. 

Essar Steel was one of the top 12 companies identified by the Reserve Bank of India (RBI) for resolution under the Insolvency and Bankruptcy Code (IBC) 2016. Bankers said with a Rs 370-billion offer already on the table by Numetal of Russia, they were expecting bidders, including ArcelorMittal and Vedanta to revise their offers upwards. 

“We do not expect any haircut in the Essar Steel debt resolution. Besides, the 9 per cent fall in rupee’s value against the dollar since January, the bidding power of the overseas investors have gone up as they will be raising funds from abroad,” said a banker. Essar Steel owed banks nearly Rs 450 billion (as of March 31, 2017), when it was sent for debt resolution by the RBI in June last year. 

However, the debt resolution of the firm has taken more than a year due to frequent changes in the IBC guidelines. The most contested issue was whether to allow a Ruia family member to bid for the asset. The Section 29A of the IBC bars promoters and their family members from applying for the assets. Numetal had made its round one offer with a trust in which Rewant Ruia, a Ruia family member, owned 25 per cent stake.

Recently in the Jaiprakash Associates case, the Supreme Court has also sent a message that the promoters will not be allowed to take part in insolvency process.

The same Section of the IBC can also singe ArcelorMittal as it was the promoter of two bank defaulters in India — Uttam Galva Steels and KSS Petron. Though ArcelorMittal has made a conditional offer to repay the debt of both firms, a decision on ArcelorMittal’s fate is expected from the NCLAT this week.

Corporate lawyers said if the offers made by ArcelorMittal and Numetal’s round one offer were not entertained due to Section 29A of the IBC, then it would be an advantage for Vedanta and JSW Steel, which have bagged one company each. While Vedanta won Electrosteel Steels, JSW Steel bagged Monnet Ispat. Both companies have expressed their interest to bid for Essar Steel and have made offers in the second round. 

Bidders of Essar Steel, however, expect litigation over the eligibility to continue even after the NCLAT order. “Both Numetal or ArcelorMittal are keen to take over the asset and would move the Supreme Court if they feel aggrieved. We are, therefore, expecting more delay in the resolution of the company,” said a JSW official, asking not to be named. The lenders said a final decision was expected by October-November.