Recoveries from Odisha Slurry Pipeline under CIRP could be low: Srei fund

Even as lenders decide on bids for Odisha Slurry Pipeline Infrastructure Ltd (OSIPL), India Growth Opportunities Fund (IGOF), a scheme of Srei Multiple Asset Investment Trust (SMAIT), has cautioned them and the resolution professional that recoveries under the corporate insolvency resolution process (CIRP) could be lower. 

IGOF holds 69 per cent equity in OSPIL, the company which owns the pipeline that carries iron ore to Essar's pellet plant. Essar Steel holds the rest. 

While two companies — ArcelorMittal and Thriveni Earthmovers — are in the running for OSPIL, lenders are believed to be in favour of ArcelorMittal's bid. A final call, though, is yet to be taken.

"ArcelorMittal's upfront payment is much higher. Thriveni's upfront is only Rs 8 crore and the entire payment will be made over a period of time," said one of the lenders. ArcelorMittal has made an unconditional upfront cash offer of Rs 2,350 crore. Thriveni’s total bid amount is Rs 3,300 crore, but it is subject the outcome of an existing legal dispute around the title of the asset. 

The 253-km slurry pipeline that the companies are vying for is critical to Essar Steel, which is set to be acquired by ArcelorMittal under the Insolvency and Bankruptcy Code (IBC). The transaction for Essar is expected to be closed by mid-December.

The pipeline connects the site of the iron ore beneficiation plant in Dabuna with the 12-million-tonne pellet plant in Paradip, an important ancillary unit of Essar Steel. 

IGOF has written to the resolution professional and the committee of creditors, requesting that OSPIL be withdrawn from CIRP. It is of the view that resolving the OSPIL debt under CIRP would lead to a lower recovery and be prejudicial to the lenders' interest. It should, therefore, be withdrawn from CIRP for the benefit of all stakeholders. The total admitted claims of OSPIL's financial creditors is Rs 2,660 crore.

A source close to the development said: "Technically, it might be possible to withdraw from CIRP before a resolution plan is approved with consent from 90 per cent of lenders. But whether or not it will be considered at this point is another matter." 

The usage charge was adequate to repay the entire debt along with interest to lenders, as well as investments made by IGOF, the letter said. 

It added that since the pipeline could not be part of the resolution plan, the resolution professional could raise necessary demand for a monthly usage charge of Rs 60 crore towards continued use of the pipeline by Essar Steel, backed now by ArcelorMittal. 

For lenders looking for an early exit, the exposure could be refinanced, since Essar Steel now is a far more creditworthy counterparty and shareholder than erstwhile Essar Steel India Limited (ESIL).

The pipeline is leased to Essar and the arrangement with OSPIL is captured in the Right to Use Agreement. The resolution professional to Essar had prayed that the pipeline be declared an asset of Essar Steel. However, the National Company Law Tribunal (NCLT), in an order dated February 2018, had said the applicant could not claim ownership of the pipeline in view of the civil suit in the Calcutta High Court.