JSW Steel sweetens offer by Rs 400 cr to close Bhushan Power deal

Proposal was made last week, payment subject to bank guarantee or indemnity from lenders, so that in case SC rejects resolution plan, settlement amount will be reversed

In a bid to cash in on the steel upcycle, Sajjan Jindal-controlled JSW Steel has offered to make the upfront payment to lenders of Bhushan Power & Steel to close more than a three-year corporate insolvency resolution process (CIRP). Additionally, the offer is being upped by Rs 400 crore to sweeten the deal.

The proposal was made last week and the payment will be made subject to a bank guarantee or indemnity bond from lenders, so that in case the Supreme Court invalidates JSW’s resolution plan, the settlement amount will be reversed, said sources. A senior JSW Steel official declined to comment.

Lenders are yet to accept the proposal. JSW Steel’s upfront payment to financial creditors was Rs 19,350 crore; with this additional Rs 400 crore, it would stand enhanced at Rs 19,750 crore; admitted claims of financial creditors is Rs 47,157.99 crore.

JSW’s readiness to pay is a change from an earlier stance. In June, after the Covid-19 pandemic, it had sought flexibility in payment schedule for its bid, but lenders had rejected the demand. Between then and now, however, the fortunes of the steel industry have changed with prices touching a two-year high and spreads at a three-year high. 

The closure of BPSL would add about three million tonnes capacity to JSW Steel’s existing 18 million tonnes. 

The additional outgo of Rs 400 crore would be distributed from the earnings before interest, taxes, depreciation and amortization (EBITDA) accrued to the company during the CIRP.

“There is a difference of opinion among lenders over the Rs 400 crore. Whether they will decide to accept it or wait for an outcome in the Supreme Court remains to be seen,” a lender said.

The matter pertaining to distribution of EBITDA during CIPR is in the apex court. The National Company Law Tribunal (NCLT) while approving JSW’s resolution plan in September 2019 had said that profits earned by running the corporate debtor during the CIRP are to be redistributed in accordance with the Essar Steel judgment of July 4, 2019.

The Essar order had said that where the successful resolution applicant is not paying the total dues to creditors but pays lesser than the claim, the profit should be distributed among all creditors including financial and operational.

The National Company Law Appellate Tribunal – where JSW had appealed against the NCLT order – had, however, allowed JSW Steel to retain the EBITDA. Subsequently, it was challenged in the Supreme Court by former promoter, Sanjay Singal, in February 2020. 

Singal in his appeal, had pegged EBITDA at Rs 3,000 crore, and said that it should distributed among creditors.

He is not the only party to have raised a flag over the JSW transaction in the apex court. The Enforcement Directorate (ED) is also contesting applicability of the newly-inserted Section 32A of the Insolvency and Bankruptcy Code (IBC) – which gives immunity to the corporate debtor – to the JSW-Bhushan deal. 

According to the ED, the amendment came into force after the acquisition was approved by the NCLT last year. About a month after the approval, however, the ED issued a provisional attachment order for assets of BPSL valued at Rs 4,025.23 crore.

While the legal points will be taken up in court, JSW in the meantime, is looking for a closure of the resolution process with the proposal to lenders to make good of the upside in steel.

JSW’s Resolution Plan:
 

. Rs 19,350 crore to financial creditors against admitted claims of Rs 47,157.99 crore

. Rs 350 crore to operational creditors
 

Offer:
 

. Close transaction against bank guarantee/indemnity bond by lenders

. Additional Rs 400 crore to financial creditors

. Amount to distributed from BPSL EBITDA