Essar Steel India proposes $7.42 billion settlement to creditors

(Reuters) - Essar Steel India Ltd said its board and shareholders have offered to pay 543.89 billion rupees ($7.42 billion) to creditors to settle their claims, allowing the company to exit from a bankruptcy process.

The steelmaker, owned by the billionaire Ruia brothers, is one of a group of companies that are among India's biggest debt defaulters that were pushed into the bankruptcy court last year after a central bank order that was aimed at clearing record bad loans at the country's banks.

Essar Steel's plan consists of an upfront cash payment of 475.07 billion rupees to all creditors, including a 455.59 billion rupees to the senior secured financial creditors.

The company submitted a proposal to its creditor committee on Thursday for settlement of the entire claims of the financial creditors, operational creditors, workmen and employees of Essar Steel India.

The offer will lead to "full upfront recovery of loans for the lenders, and maximum recovery for all other classes of creditors," the company said.

The world's biggest steelmaker, ArcelorMittal SA , is forming a joint venture with Japan's Nippon Steel & Sumitomo Metal Corp to bid for the debt-ridden Essar Steel.

ArcelorMittal said last week that it would pay off creditors of two Indian firms, in which it previously held stakes, to bid for Essar.

($1 = 73.2750 Indian rupees)

(Reporting by Krishna V Kurup in Bengaluru; Editing by Amrutha Gayathri and Jane Merriman)