Letters of Intent for mines won't add to asset value for Essar & Bhushan

The iron ore blocks bagged in auctions by Essar Steel, Bhushan Steel, and Bhushan Power & Steel — all now facing insolvency proceedings — are unlikely to augment their asset values.

These companies had successfully bid for three iron ore blocks located in Odisha over the past one year, following which, they had been issued Letters of Intent (LoIs) for allotment of mining lease by the state government.

As the LoIs have not been converted into mining leases yet, these cannot be shown in the asset list of the companies, an official of the state mining department said.

The official said that in the event of any change in the management of the companies, following the insolvency proceedings, the LoIs cannot be transferred in the name of the new owners of the firms, if any.

According to the rule, mining leases can be transferred, in case of change of ownership of the company, but LoIs can’t be transferred, he said.

Essar Steel had bagged the Ghoraburhani-Sagasahi block in Odisha — having a reserve of 100 million tonne — last year through an auction, quoting a premium of 44.35 per cent above the reserve price. Earlier this year, Bhushan Steel and Bhushan Power & Steel won the bid for Kalamang West and Netrabandh Pahar mines in Odisha, with quotes of 100.05 per cent and 87.15 per cent revenue sharing with the state government, respectively. In the process, they had outbid strong contenders such as Tata Steel and Jindal Steel & Power.

With all companies that won iron ore blocks in the state facing insolvency proceedings, the Odisha government is worried about the future development of the blocks.

According to the procedure, LoIs would be converted into mining leases after the successful bidders get all statutory clearances, like forest and environment clearances.

With the net worth of these loan-defaulting companies severely eroded, that might also infringe the conditions of allotment of mining lease to them, sources said.

In case, the companies are declared bankrupt following the insolvency proceedings and sold to other promoters, the iron ore blocks may go back to the government for rebidding, they added.