ArcelorMittal is set to sell its entire 29 per cent stake in Uttam Galva Steels to its co-promoter in the company, the Miglani family's Sainath Trading Company, for Rs 1 a share. The average share price in the past six months was Rs 24 a share.
With this, ArcelorMittal will cease to be a promoter of Uttam Galva, a bank defaulter undergoing insolvency proceedings, and become eligible to take part in auctions for stressed assets in the country.
Ankit Miglani, Uttam Galva promoter, confirmed the proposed transaction but refused to divulge details. The tentative date for the sale is on or before February 7, when around 41,327,931 shares held by ArcelorMittal Netherlands BV, translating into a 29.05 per cent stake, will be transferred. The company has informed the State Bank of India, its lead banker, and the market regulator.
A stock exchange notice said the per share acquisition price of the proposed transaction would not be higher by more than 25 per cent of the average market price for a period of 60 days. An e-mail sent to ArcelorMittal did not elicit any response till the time of going to press.
The share sale, at a time when bidding for other stressed steel assets is under way, has alarmed lenders and other bidders. "This is a way of circumventing guidelines, as all promoters can sell their shares in defaulting units and will, thus, become eligible to bid," said one of the bidders, asking not to be quoted. On Monday, Uttam Galva shares closed 4.5 per cent down at Rs 19.55 a share.
ArcelorMittal bought the stake in Uttam Galva in 2009 after having failed to put up greenfield plants in India and is marked as a promoter in stock exchange disclosures.
When the Insolvency and Bankruptcy Code was amended in November, questions were raised about ArcelorMittal's eligibility as a bidder as it was a promoter of Uttam Galva.
According to Section 29A of the IBC, a person shall not be eligible to submit a resolution plan if such person, or any other person acting jointly with such person, or any person who is a promoter or in management of such person, is an undischarged insolvent. This prohibits promoters or sister concerns of companies with non-performing assets (NPAs) of more than a year from taking part in auctions.
ArcelorMittal had, however, said the IBC regulations were intended to prevent defaulting promoters whose own investments had failed and were insolvent from buying those same assets out of bankruptcy. "We are a widely recognised and highly credit worthy international investor and, hence, do not believe that this amendment should prevent ArcelorMittal from bidding for distressed steel assets in which we have had no prior involvement," it had said in November.
It had also said that they held a non-controlling minority shareholding in Uttam Galva, had no representation on the board of directors, nor any influence on management decisions. "As such, we are not a promoter of Uttam Galva. Therefore, there is no objective reason for ArcelorMittal to be prevented from bidding."
But legal experts say that in the definition of Section 29A, the term "promoter" should be considered at the time of a company becoming an NPA and not at the time of bidding. "If promoters at the time of bidding are considered as promoters, then this is a very simple mechanism to circumvent guidelines. This should not be considered by the committee of creditors under any circumstances," the bidder, quoted earlier, said, while adding they would take the matter to court as Uttam Galva had defaulted to bank debt worth Rs 62 billion as on financial year ended March 2017.
Uttam Galva was on the second list of the Reserve Bank of India's defaulting companies and was in discussions with lenders for restructuring, as its debt to equity ratio shot up to 31.1. Subsequently, the restructuring failed, and the central bank referred it to the bankruptcy courts.
Until now, ArcelorMittal has done due diligence of Bhushan Steel, Bhushan Power & Steel, and Essar Steel plants. But it withdrew from the bidding process for Bhushan Power & Steel sometime back and said it had not put in a bid for Bhushan Steel. On Sunday, the company said it has not bid for Bhushan Steel, but was interested in future opportunities. The bid deadline for Essar Steel is February 15 and ArcelorMittal is expected to take part. As for Uttam Galva, JSW Steel is interested in making a bid for its Maharashtra plant as it is close to its own plant and Uttam Galva is its customer.