When steel turned into gold for Tata, Vedanta, ArcelorMittal: How IBC converted NPA volcanoes into gold mines

By: | Published: September 13, 2018 1:31 PM

While the Reserve Bank of India (RBI) was on the mission to ensure maximum recovery of lenders' money from these troubled steel companies, what the IBC also did was to offer one-time-opportunity to many players to gain ownership control of these high-value but troubled companies.

When steel turned into gold for Tata, Vedanta, ArcelorMittal: How IBC converted NPA volcanoes into goldminesWhen steel turned into gold for Tata, Vedanta, ArcelorMittal: How IBC converted NPA volcanoes into gold mines

By 2017, some of India’s biggest steel companies had become the largest bad loans volcano in the banking system. But as soon as the Insolvency and Bankruptcy Code (IBC) kicked-in, these non-performing assets became potential gold mines for big names such as Tata, Vedanta and ArcelorMittal — either looking to expand or foray into the steel industry.

While the Reserve Bank of India (RBI) was on the mission to ensure maximum recovery of lenders’ money from these troubled steel companies, what the IBC also did was to offer one-time-opportunity to many players to gain ownership control of these high-value but troubled companies.

Bhushan Steel, which was over Rs 50,000 crore worth company by market cap in 2010, has been acquired by Tata Steel for Rs 35,000 crore. Bhushan Steel’s buyout amount paid off a big part of lenders’ debt, also making it the most successful case under IBC so far. Similarly, Electrosteel Steels’ insolvency case rolled out the red carpet for Vedanta to foray into the steel industry by writing a check for Rs 5,300 crore.

Speaking of the quick success the bankrupt steel companies achieved under the IBC, NITI Aayog CEO Amitabh Kant recently said that the reason behind high interest from big names was strong demand for steel. He explained that due to the government policy of curbing steel imports from China, there was a spurt in demand for steel in the domestic market, making steel manufacturing a lucrative business.

Lakshmi Mittal’s ArcelorMittal and Russia’s VTB Group-backed Numetal Mauritius are locked in a tough race for Essar Steel. ArcelorMittal has, time and again, made its case of being a perfect fit for running the business of the bankrupt Essar Steel. Most recently, ArcelorMittal sweetened the deal by offering Rs 42,000 crore to get ahead in the race. Although the case is stuck in courts, experts say it might end up helping lenders milk more money for the company.

“We have seen bidding wars drive up the recovery prices in a few instances, and it cannot be disputed that a ready-to-go asset may add more value compared to greenfield projects with long gestation periods. Considering the present steel industry, and the demands pressed on it, these stressed assets become even more lucrative for existing companies looking add capacity,” Punit Dutt Tyagi, Executive Partner of Lakshmikumaran & Sridharan Attorneys told FE Online.

But most importantly, the bankrupt steel companies, saddled by huge loans, poor management and unfavourable market situations, also have chances of revival under the new management. “Big corporate houses taking over stressed assets and expressing interest in making them fully functional units again, is definitely a positive signal. The bidders bidding for the bankrupt companies come with expertise, experience, talent, and more importantly deep pockets,” Punit Dutt Tyagi added.

Another expert, Simranjeet Singh of Athena Legal echoed Dutt’s view. He said, “The intent of the code is also to ensure that every possible effort is made to ensure the revival of the company, besides recovery of the dues.”

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