ArcelorMittal says looks forward to completing acquisition of Essar Steel

ArcelorMittal on Friday expressed hope to complete the acquisition of Essar Steel soon after the Supreme Court allowed the world's largest steelmaker to pay Rs 42,000 crore to creditors of the Mumbai-based Ruia family-owned firm.

Reacting to banks making an unprecedented recovery of almost 90 per cent of loans given to Essar Steel, an Essar spokesperson said ArcelorMittal and its Japanese partner Nippon Steel were "acquiring a world-class facility in a market that has a long runway for growth."

The Supreme Court on Friday scrapped a bankruptcy appellate tribunal's order that gave secured and unsecured lenders equal rights over insolvency proceeds. It said bankruptcy courts have no say in deciding the distribution of funds raised through insolvency auction. They can only examine the legality of the resolution plan approved by the panel of lenders of an insolvent company. Only the Committee of Creditors (CoC) has the right to distribute the proceeds.

 

Essar Steel was auctioned under the new Insolvency and Bankruptcy Code (IBC) to recover Rs 54,547 crore of unpaid dues of financial lenders and operational creditors.

"We look forward to the closing of the acquisition soon," ArcelorMittal said in a statement, adding that it is "very pleased with the judgment that our resolution plan has been approved".

Sapan Gupta, Partner and National Head of Banking and Finance at Shardul Amarchand Mangaldas, said the Supreme Court judgement is very heartening for the growth of IBC in India.

"The apex court has correctly recognised the difference between secured and unsecured creditors which is essential for the banking industry where majority lending is done basis collateral," he said. "The apex court has also given due recognition to the commercial wisdom of the lenders and has made CoC the king."

The verdict is a huge win for the economy as it will see an influx of Rs 42,000 crore to wipe out a chunk of NPAs, he added.

The judgment will allow ArcelorMittal entry into the world's second-biggest steel market. Essar Steel will make the Luxembourg-based company India's fourth-largest steel producer.

ArcelorMittal and Nippon Steel Corp had offered to pay Rs 42,000 crore in cash to creditors and pump another Rs 8,000 crore in Essar Steel last year. While that offer was approved by a bankruptcy tribunal in March under the insolvency process, the payment was kept on hold by the Supreme Court after a dispute arose between lenders on the distribution of funds.

The CoC had originally decided that financial creditors would get paid 90 per cent of their claims, compared with a 20.5 per cent payout for operational creditors with dues of over Rs 100 crore. However, this was overturned by an appellate tribunal that decided banks would be paid 60.7 per cent of their dues and operational creditors with dues above Rs 100 crore could claim 59.6 per cent.

The decision to place secured creditors like banks at par with unsecured ones such as suppliers had raised concerns from banks to foreign funds. The Supreme Court set aside the order.

"We wish ArcelorMittal and Nippon Steel the very best on their entry into the Indian market. They are acquiring a world-class facility in a market that has a long runway for growth," an Essar spokesperson said.