Lenders sweeten Essar deal, offer Rs 1,000 cr more to operational creditors

The Rs 1000 crore offer could mean a higher haircut for banks

Lenders to Essar Steel have decided to sweeten their offer to operational creditors of the bankrupt company by offering Rs 1,000 crore more from what ArcelorMittal has submitted as its resolution plan.

In the meeting of the Committee of Creditors held in Mumbai on Wednesday, the lenders decided to seek votes on the proposal from all the banks that have an exposure to Essar Steel, and the results are expected by Saturday.

The additional funds for operational creditors mean a higher haircut for the banks, which are waiting for the resolution of Essar Steel’s debt since June 2017.

Haircut is the amount a bank will forgo to settle a defaulter's account.

According to the plan submitted earlier by Mittal, the operational creditors were getting Rs 214 crore as compared to their outstanding dues worth Rs 4,976 crore. The additional funds would help placate some of the operational creditors, said a source. 

However, Standard Chartered Bank, which is an operational creditor and has made the highest claims of Rs 3,400 crore, is excluded from the new offer. Based on ArcelorMittal’s payments plan, Stanchart is getting only 1.7 per cent or Rs 60 crore of its dues while other lenders are getting 92 per cent of their dues.

During the hearing at the National Company Law Appellate Tribunal (NCLAT), Essar’s lead banker, State Bank of India, had opposed giving equal treatment to StanChart, saying the bank was not a secured creditor because its exposure was not to Essar Steel directly. 

Stanchart has moved the NCLAT against the National Company Law Tribunal (NCLT) Ahmedabad order that had cleared ArcelorMittal’s plan but had suggested that the operational creditors get 15 per cent from Mittal’s offer while financial creditors could take 85 per cent of the offer.

ArcelorMittal had offered Rs 42,000 crore to the financial creditors as against the Rs 48,000 crore dues of Essar Steel and has said that it was up to the banks to divide the money among them. 

ArcelorMittal has promised to pay 100 per cent dues to the operational creditors that have an exposure of up to Rs 1 crore.

The NCLAT had earlier said that lenders must consider clearing at least 10 per cent dues of all operational creditors.

Operational creditors want a higher share from Mittal’s offer. Of the 88 companies that have successfully undergone corporate insolvency, financial creditors have received about 48.24 per cent while the operational creditors have received nearly 48.41 per cent of their admitted claims, according to Insolvency and Bankruptcy Board of India (IBBI) statistics. 

On March 20, the NCLAT asked the resolution professional of Essar Steel India to call a fresh meeting of the committee of creditors (CoC) to consider the redistribution of funds from ArcelorMittal’s resolution plan. Though the appellate tribunal clarified there would be no stay on the implementation of the resolution plan, the CoC and resolution professional will have to call a meeting on the issue and convey its decision to the NCLAT. It will hear the case again on April 9. The case is expected to be decided by the Supreme Court.