Usha Martin management proposes escrow on steel biz sale proceeds

The Usha Martin management has proposed to the lenders to keep the sale proceeds from the Tata Steel transaction in an escrow account, amid allegations of opacity around end use of funds brought about by promoters Basant and Prashant Jhawar.

Confirming, Rohit Nanda, chief financial officer, said, "We have proposed this at the lenders' meeting on Friday. Lenders would now have to seek approvals internally."

Nanda, however, clarified that putting sale proceeds in an escrow account was stipulated by the Board on September 22 itself while accepting Tata Steel offer. Thus, the reason for mooting the proposal for putting the funds in the escrow is not the issue brought forward by a section of the promoter family but it does take care of the questions that have been raised. 

Putting sales proceeds in such deals is a standard mechanism but not the only mechanism, industry experts said.

Nanda pointed out that it would be in the interest of lenders as they would be releasing security of the assets.

Asked when the money is likely to be transferred, Nanda said, "There are conditions precedent, which are to be met by the seller (Usha Martin) like it is the case with deals of this nature. Once all conditions precedent is met, the buyer will transfer the money in the escrow. It's expected to take about six months to meet the conditions precedent."

The amount of consideration for the transfer of business in the range of Rs 43-Rs 47 billion, subject to adjustments, according to the signed agreements.

Except for the transaction cost and tax liability, the entire sale proceeds would be used towards repayment of debt, said Nanda. "Most of the debt would get paid off," he said.

Last week, Basant and Prashant Jhawar, who jointly hold 25 per cent in Usha Martin, had said the end use of the funds was opaque. They had also said that no details were available, creating doubt over transparency and management accountability. "Since no details are on the table, our concern over diversion of funds continues," their statement said. 

That prompted a rebuttal from Usha Martin, which had said the Board and management of Usha Martin were committed to debt repayment. It had also said the concerns regarding diversion of funds were unfounded.

Basant and Prashant Jhawar had not given their consent to at the board meeting on September 22, which approved sale and transfer of the company's steel business to Tata Steel.

However, the sale and transfer would be placed before shareholders for approval. Brij Jhawar and Rajeev Jhawar, currently the managing director the other promoter faction, who have been at odds with Basant and Prashant Jhawar, also hold an equal share in the firm. Institutional holding in the company is 10.80 per cent. 

In the statement, Basant and Prashant Jhawar had, however, acknowledged that Tatas were an excellent business house and their involvement in steel business of Usha Martin would add value to the stakeholders and that the transaction with Tatas was overall a positive development. "We are encouraged by Tatas signing an agreement with the current management," the statement had said. It now remains to be seen whether they vote in favour of the deal.