The Ahmedabad bench of the National Company Law Tribunal (NCLT) on Wednesday admitted insolvency petitions against Essar Steel, paving the way for lenders to go ahead with insolvency proceedings. State Bank of India (SBI) and Standard Chartered Bank had filed separate petitions under the Insolvency and Bankruptcy Code.The tribunal has appointed Satish Kumar Gupta of Alvarez and Marsal, India, as the interim resolution professional (IRP) to work on Essar’s debt restructuring plan for both lenders.
Essar Steel owes lenders close to Rs 45,000 crore, of which Rs 31,671 crore turned into a non-performing asset (NPA) as of March 31, 2016. SBI leads a consortium of 22 lenders that account for 93% of the company’s debt. Essar Steel also owes around Rs 3,700 crore to Standard Chartered Bank. Essar Steel’s Mauritius-based subsidiary had borrowed from Standard Chartered Bank for which Essar Steel’s promoters were guarantors. On July 4, Essar had moved the Gujarat High Court against its inclusion in the list of 12 defaulters to be referred to the NCLT. Essar Steel’s counsel had argued in the court that its restructuring proposal was at an advanced stage and its financial and operational improvements since March 2016 had not been taken into account by the Reserve Bank of India. However, the court had dismissed Essar Steel’s appeal on July 17. When Essar Steel had sought time to file its reply with the NCLT, SBI and Standard Chartered Bank argued that the company already got enough time and added that insolvency proceedings should not be delayed. Lenders had also informed the NCLT that the appointment of an IRP would not impact Essar Steel’s operations.
The total debt of the Essar Group is estimated at Rs 1.17 lakh crore. Most private banks have sold off their Essar Steel exposure to asset reconstruction companies, taking a haircut of more than 50%; most PSU banks have declared Essar Steel as an NPA. Once cases are admitted, lenders need to set up a committee of creditors that will come up with a plan on how the asset will be tackled. If the committee is unable to find a solution within 180 days — this can be extended to 270 days — the borrowing entity will go into liquidation.