VTB Capital-backed Numetal offers to pay off all dues of OSPIL

In return, it will own 70% in the firm, which is a lifeline for Essar Steel

VTB Capital-backed Numetal has offered to repay all dues of Odisha Slurry Pipeline Infrastructure Limited (OSPIL), which owns a 253-km slurry pipeline and is a lifeline for Essar Steel, before April 30 for a 70 per cent stake. The move comes ahead of the rebidding for Essar Steel on April 2.

Numetal is understood to have arranged for funds of over Rs 20 billion to pay off all dues. IDBI Bank, the lead lender to OSPIL, had taken the firm to the National Company Law Tribunal (NCLT). However, sources close to the development said the case had not been admitted in the NCLT as yet. OSPIL owes banks Rs 16.71 billion.

A month before the bidding for Essar, Numetal, one of the bidders, entered into an agreement with India Growth Opportunities Fund, a fund floated by Srei, to purchase 70 per cent equity in OSPIL. The transaction, however, is yet to take place.

Lenders to OSPIL had objected to the sale on the grounds that under the loan agreement, any sale required prior approval, and issued loan recall notices on February 15. Sources indicated that with this offer, lenders were unlikely to block the deal. There is, however, a restraint from the Delhi High Court from transferring the controlling stake in Odisha Slurry Pipeline to Numetal Mauritius until April 5, the next date of hearing.

Reacting to the development, ArcelorMittal, the other bidder for Essar, said, “These are important issues for Essar Steel India but we are confident that in the event we are successful, we will find successful outcomes to ensure the steel plant is able to operate smoothly and efficiently.”

A source close to the company said, “This is clearly an attempt to put obstacles in the path of ArcelorMittal pursuing Essar. But it won’t work. Of the two consortia, ArcelorMittal is clearly the more experienced operator when it comes to the steel and mining industries. They are not going to be bullied out of the game by these sort of tactics.”

Sources close to ArcelorMittal said creditors were not going to be forced to select a company because they were trying to take control of the pipeline. “Furthermore, it’s not even clear at this point in time that this tactic will work given the matter is sub-judice,” a source said.

The slurry pipeline is an important cog in the Essar acquisition, and transports iron ore from the mines in the hinterlands of Odisha to the pellet plant in Paradip. At the current capacity of Essar, the slurry pipeline has the capability to transport all the ore required for the pellet plant. The pipeline cuts cost by around 50-80 per cent, if compared to rail and road transport.

The letter sent to lenders mentions that OSPIL has received in-principle commitment for refinancing the entire indebtedness of the company before April 30. That would be around the same time that a conclusion regarding the Essar bid is likely to be reached as the 270-day period would be end on April 29. 

The two bidders for Essar Steel - ArcelorMittal and Numetal - were rejected in the first round on grounds of eligibility and hence the rebid on April 2. Both the firms have moved the NCLT, challenging the decision to reject their bids.
 

STRATEGIC MOVE

• IDBI Bank, the lead lender to OSPIL, had taken the firm to the NCLT
• OSPIL tells lenders it has received refinance commitment
• Move comes ahead of Essar Steel rebid on April 2
• ArcelorMittal says will ensure the steel plant is able to operate smoothly and efficiently