Tata Steel announced on Wednesday it has been declared the highest bidder for the bankrupt Bhushan Steel, saying it had received a formal communication from the resolution professional (RP) to this effect. The other prominent bidder in the fray was the Sajjan Jindal-promoted JSW Steel.

FE learnt from senior bankers Tata Steel has committed as much as Rs 35,000 crore, all of it in cash, which gave it an edge over rival JSW Steel. Koushik Chatterjee, ED and CFO, Tata Steel, refrained from commenting on the size of the deal as also the manner in which it would be funded. Chatterjee indicated several approvals would be needed before the acquisition could be declared a done deal.

Should the deal go through, it would be the first large transaction to be completed under the Insolvency and Bankruptcy Code (IBC), 2016, and a feather in the cap of the government which is attempting to find takers for stressed assets.

A consummation of the deal would also boost the morale of beleaguered bankers looking for resolutions for nearly two dozen large companies that have been unable to pay their dues. Although the banks may need to take haircuts, the government believes that the clean-up would strengthen their balance sheets and they will be better placed to lend.

Bhushan Steel owes lenders approximately Rs 46,263 crore and was referred by lenders to the National Company Law Tribunal (NCLT) under the IBC last year. It reported a net loss of Rs 3,614.8 crore in FY17 on revenues of Rs 15,027 crore. The resolution plan to revive Bhushan Steel will now be refined after consultations between Tata Steel, the committee of creditors representing the lenders and the RP.

Once the discussions are over and the plan finalised, it would be filed with the NCLT, which would need to pass its order by end-April.

This would be within 270 days of Bhushan Steel being admitted by the NCLT on July 26, 2017, on the basis on pleas filed by State Bank of India (SBI) and Punjab National Bank (PNB). Vijaykumar Iyer from Deloitte was appointed as the RP.

Analysts at Edelweiss observed recently that the potential acquisition of stressed assets makes strategic sense for Tata Steel, despite the seemingly expensive valuation. “Our conviction is anchored by likely Ebitda (earnings before interest, taxes, depreciation and amortisation) improvement due to higher capacity utilisation and cost-efficient raw material sourcing; market leadership in profitable automotive steel segment; and hitting the ground running by expanding market share in a supportive steel cycle,” analysts said.

Bhushan Steel, promoted by the Singals, has a steel production capacity of 5.6 million tonnes per annum (mtpa) at its plants in Ghaziabad, Uttar Pradesh; Khopoli, Maharashtra; and Dhenkanal, Odisha. Lenders to Bhushan Steel include SBI, PNB, Union Bank, Bank of Baroda, Bank of India, among others.

Tata Steel had a steel production capacity of approximately 27.5 mtpa as on March 31, 2017, it said in the notification. It has operations in 26 countries and a commercial presence in over 50 countries. Tata Steel reported a net loss of Rs 4,240.8 crore in FY17 on revenues of Rs 1,16,682.5 crore. However, the company turned profitable in the beginning of FY18, and for the three months ended December 31, 2017, Tata Steel reported a nearly fivefold jump in the consolidated net profit to Rs 1,136 crore.