Sources close to the development said lenders would have to take a 34 per cent haircut if they selected ArcelorMittal’s offer and a bigger one if they chose Numetal. Essar Steel’s admitted financial claims stand at Rs 490 billion.
According to sources, Arcelor offered Rs 303 billion to secured lenders, and around Rs 2 billion each to unsecured lenders and operational expenses. Arcelor has also committed equity infusion of Rs 80 billion. However, lenders could still opt for a fresh round of bids, but that was likely to be legally challenged. Legal sources in Numetal said a fresh round of bidding would be challenged. Alternatively, lenders could give time to ArcelorMittal and Numetal for rectification if found ineligible. A decision on the course of action is likely to be taken in the next CoC meeting, slated for April 27.
The rationale for fresh bids, cited by one of the lenders, was that the offers were made based on the liquidation value of Essar Steel, Rs 220 billion. The liquidation value was included in the information memorandum.
However, in January, the Insolvency and Bankruptcy Board of India (IBBI) amended the rules and did away with the requirement of disclosing the liquidation value in the information memorandum for better price discovery.
Ahead of the CoC meeting, JSW Steel had written to it, asking for fresh bids. Sources close to the development said the letter came up for discussion during the course of the meeting on Tuesday.
JSW Steel is in partnership with Numetal now for the second round of bids, but could go it alone if fresh bids were invited.
A source close to one of the bidders, however, pointed out that the summary of the order of the Ahmedabad bench of the National Company Law Tribunal (NCLT) was to remand the first bids back to the resolution professional and the CoC and not to invite a fresh round of bids. “That is not the operative part of order,” he said.
The NCLT bench had remanded the bids in the first round to the RP and CoC for reconsideration as 30 days’ time had not been given to the resolution applicants for curing their ineligibility.
The RP, based on legal advice, had rejected the bids of ArcelorMittal and Numetal on grounds of ineligibility under Section 29A of the Insolvency and Bankruptcy Code (IBC).
ArcelorMittal had sold its shares in Uttam Galva and L N Mittal in KSS ahead of submission of the Essar Steel bid, to make the bidder eligible. The RP and the CoC had, however, found ArcelorMittal to be ineligible on technical grounds, because it was a promoter on the records of stock exchanges even though it had sold its shares. Numetal, too, was rejected because Rewant Ruia, son of Ravi Ruia, was the ultimate beneficiary of Aurora Enterprises, one of the shareholders of Numetal. Ravi Ruia is the promoter of Essar Steel.
It was possible for the CoC to reject the financial bids not on the issue of eligibility but on financial terms, a source close to the development said. The issue of eligibility of ArcelorMittal and Numetal were not discussed at the CoC meeting on Tuesday. It was likely that clear instructions on the cure for ArcelorMittal’s and Numetal’s eligibility would be given in the next meeting but that was more likely if a fresh round of bids was not announced. An appeal against the NCLT order also came up for discussion. The NCLT bench while remanding the first round of bids to the RP and CoC pointed to payment of overdue amount as a cure for resolution applicants who were promoters of non-performing assets for more than a year. Sale of shares and declassification did not absolve them of their responsibility, it had observed. However, the CoC was not to be influenced by the tribunal’s observations and was asked to take an independent view on eligibility.