Twist in Essar Steel tale: Ruias make last-minute bid to pay Rs-543-bn dues

Ruias' last minute offer came as lenders started voting on two offers made by ArcelorMittal and Vedanta

The promoters of debt-ridden Essar Steel took its creditors by surprise by offering to settle the entire claims of Rs 543 billion under Section 12A of the Insolvency and Bankruptcy Code (IBC). The rule allows a company to exit the bankruptcy process if it offers to repay dues and 90 per cent of the lenders accept the proposal, the Ruias said.

Essar Steel said on Thursday that shareholders of the company had offered the committee of creditors (CoC) full settlement of the admitted claims of financial creditors, operational creditors, and workmen and employees of Essar Steel India (ESIL), aggregating Rs 543.89 billion, under Section 12A. The plan included an upfront cash payment of Rs 475.07 billion to all creditors, including Rs 455.59 billion to senior secured financial creditors, which would result in 100 per cent recovery for the lenders, the company said in a statement.

The last-minute offer by the Essar Steel promoters, the Ruia family, came as the lenders started voting on the offers made by ArcelorMittal and Vedanta. Banking sources said 92 per cent of the lenders (by voting share) voted in favour of ArcelorMittal's plan. 

If the CoC accepts Essar's offer, it will be the first company among the RBI’s list of 40-odd companies sent to the National Company Law Tribunal (NCLT) for debt resolution where the promoters will repay the entire dues.

However, the resolution professional will need to table the Ruias’ proposal at Friday’s CoC meeting. RK Bansal, CEO, Edelweiss Asset Reconstruction Company, which is a lender to Essar Steel, said the promoters’ offer came after the lenders had finished voting on ArcelorMittal. “We have not been informed of any decision by the resolution professional on the offer made. Ultimately, it depends on the RP whether he wants to table it.”

Essar said the CoC was empowered to consider and approve this settlement plan with the requisite voting share, on the basis of which the Corporate Insolvency Resolution Process against Essar Steel might be withdrawn. “While the resolution plan currently under the CoC’s consideration takes care of only secured creditors (banks), by offering this settlement, the shareholders of ESIL are ready to pay up the entire dues. This will lead to not only maximum recovery for the lenders, but also for all other classes of creditors, thus taking the company out of the corporate insolvency resolution process under Section 12A of the IBC,” the statement said.

It said the company got into difficulty because of external factors. “The value and quality of the asset can be ascertained from the interest shown and value offered by all the global steel majors. It has been our constant endeavour to arrive at the best resolution for all stakeholders of ESIL. In fact, even after the onset of the insolvency resolution process, the shareholders of Essar Steel had made offers to settle the debt of the company, but the lenders did not accept those offers. We believe our current proposal will provide 100 per cent recovery to secured creditors and lenders, and maximum recovery for unsecured creditors. This is well in excess of that offered in the proposal under consideration, and is in line with value maximisation, which is the underlying principle of the IBC process,” said Prashant Ruia, director of the Essar group.

Section 12A was inserted in June, which allows the withdrawal of applications admitted under Section 7, 9 or 10 of the IBC Act. 

Essar said the adjudicating authority might allow the withdrawal of the resolution application post admission with the approval of 90 per cent voting share of the CoC. Earlier, there was no such provision in the IBC or the Corporate Insolvency Resolution Process rules.

ArcelorMittal offered Rs 395 billion as upfront payment and Rs 25 billion cash available with Essar to the lenders, besides Rs 85 billion as additional equity into the company. 

Vedanta, on the other hand, offered Rs 350 billion as upfront payment to the banks and Rs 50 billion as equity into the company. Vedanta, at the same time, agreed to sweeten the offer. Essar Steel’s third suitor, VTB Bank of Russia, also agreed to make a generous offer and moved the Supreme Court to get its approval for the same. Its petition is pending with the apex court. Essar Steel had overdues of Rs 495 billion when it was sent to the NCLT by the lenders following an RBI directive in June last year.

The Ruias’ offer is a big setback to ArcelorMittal’s plan to enter India by acquiring a distressed asset. It was forced by the Supreme Court to pay the debt of two defaulting companies where ArcelorMittal or its founder LN Mittal had a stake. Following the SC order, ArcelorMittal paid Rs 75 billion to Indian lenders after Uttam Galva Steels and KSS Petron defaulted on bank loans. Earlier, ArcelorMittal had sold stakes in the two companies in February to become eligible for the bidding process which started few days later.

On October 20, the resolution professional (RP) of GPI Textiles, a company controlled by Pramod Mittal, informed the CoC of Essar Steel and filed a caveat that ArcelorMittal should repay the dues of the company to the public sector banks under Section 29A of the IBC as Pramod is younger brother of LN Mittal.

ArcelorMittal had said it was not liable for Pramod Mittal’s loan defaults. Deutsche Bank also raised an objection to ArcelorMittal India, a subsidiary of ArcelorMittal, paying the dues of Uttam Galva Steels, saying it has not received a single penny for its $14 million exposure. Essar Steel got into difficulty because of external factors like lack of gas supply and dumping of cheap steel by China, the company said. 

The Essar Saga

Aug. 2, 2017: NCLT, Ahmedabad initiates insolvency action against Essar Steel

Feb 6th 2018: ArcelorMittal sells stake in two defaulting companies Uttam Galva, KSS Petron to get eligible to bid for Essar Steel

Feb. 12:  ArcelorMittal, VTB Capital-consortium Numetal submit bids, Ruia owned entity owned 25 per cent stake in Numetal

Feb. 21, 2018: Legal advisors asks RP of Essar Steel to reject both bids on failure to meet criteria on bankruptcy laws which disallows promoters of defaulting companies to bid

March 21:  Creditors reject first round of bids and seek fresh offers for Essar; JSW Steel partners with Numetal to bid in the second round after dropping Ruia as equity partner. Vedanta  also joins the race

Sept 7th: NCLAT says Numetal’s second bid eligible, Asks Mittal to clear dues by Sept 11, Mittal moves SC

Oct 4th:  SC allows both Numetal, ArcelorMittal to bid provided both clear their dues to banks; Mittal pays UGSL/KSS dues but Numetal is unable to pay dues of Essar group

Oct 24th: Banks begin voting on Vedanta, ArcelorMittal offers

(With inputs from Namrata Acharya and Advait Rao Palepu)