Essar Steel: Lenders approve ArcelorMittal bid

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Mumbai | Published: October 27, 2018 6:05:36 AM

A day after the promoters of Essar Steel — the Ruias — in their last-ditch attempt to retain the company, offered to pay lenders Rs 54,389 crore after the committee of creditors (CoC) had voted on the bid by ArcelorMittal, the lenders issued the latter a letter of intent (LoI) declaring them as the successful applicant.

Essar Steel, ArcelorMittal bid, committee of creditors, letter of intent, Insolvency and Bankruptcy Code, Lakshmi Mittalhe Lakshmi Mittal-led ArcelorMittal said in a statement on Friday that it has won the bid to acquire the bankrupt Essar Steel for over Rs 42,000 crore. (PTI)

A day after the promoters of Essar Steel — the Ruias — in their last-ditch attempt to retain the company, offered to pay lenders Rs 54,389 crore after the committee of creditors (CoC) had voted on the bid by ArcelorMittal, the lenders issued the latter a letter of intent (LoI) declaring them as the successful applicant. The Lakshmi Mittal-led ArcelorMittal said in a statement on Friday that it has won the bid to acquire the bankrupt Essar Steel for over Rs 42,000 crore.

As is known, over 90% of the lenders on the CoC had voted in favour of the bid by Arcelor Mittal, which has promised at least Rs 39,500 crore by way of cash upfront. The Ruias had said on Thursday that they have offered to pay the dues under Section 12A of the Insolvency and Bankruptcy Code (IBC), introduced in 2018 by way of an amendment. They want the CoC to consider their offer as it offers maximum value to all stakeholders and cannot be ignored citing some process lacunae.

An Essar Group spokesperson said that the offer is superior to ArcelorMittal’s bid as it provides 100% repayment to lenders and meets the objectives of maximisation of value and protection of the interest of all stakeholders. It cannot be ignored just because the offer to pull out the company out of bankruptcy was not made before CoC called bids.

The company said that Section 12A of the Insolvency and Bankruptcy Code (IBC) that allows withdrawal of insolvency proceedings subject to approval by 90% of the creditors and the National Company Law Tribunal (NCLT), was introduced in June 2018, much after the expression of interest (EoI) in case of Essar Steel was floated on October 20, 2017.

According to eminent lawyer Shardul Shroff, founder, Shardul Amarchand Mangaldas, Section 12A would not be applicable in the case of Essar Steel’s promoters. “Section 12A is valid only before the the EoIs come in. But here not only have the EoIs come in the CoC has finished voting on the two proposals as mandated by the Supreme Court,” Shroff had explained to FE on Thursday in his personal capacity. According to him on a reading of the Supreme Court order, it was very clear there has to be a re-submission by Numetal and Arcelor, and Essar by itself was not a party or a bidder. “So, for them to come in at this stage would be a violation of the Supreme Court order because they were not a party entitled to open the whole round,” he had explained.

State Bank of India (SBI) had referred Essar Steel to the NCLT seeking a resolution via the corporate insolvency resolution process under the IBC. Essar Steel owes lenders about Rs 49,000 crore. ArcelorMittal has agreed to pay a total of Rs 50,000 crore including Rs 39,500 crore of cash upfront, Rs 8,000 crore of capital infusion into the company and approximately Rs 2,500 crore of working capital. Over and above this, it will make payments to operational creditors and to workers.

Meanwhile, in a separate statement, Nippon Steel & Sumitomo Metal Corporation said it had been engaged in, together with ArcelorMittal, acquisition procedures aiming at jointly acquiring and managing Essar Steel.”On October 25, ArcelorMittal India Pvt Ltd, a subsidiary of ArcelorMittal and the resolution applicant, has been declared the successful applicant by Essar Steel’s CoC. The acquisition will be implemented subject to the approvals of Indian National Company Law Tribunal and other relevant authorities,” it said.

On its part, ArcelorMittal said that Essar Steel is an integrated flat steel producer with annualised crude steel production of 6.5 million tonnes. It also has iron ore pellet facilities in the east of India, with a current annual capacity of 14 million tonnes per annum.

ArcelorMittal intends to raise Essar Steel’s finished steel shipments to 8.5 million tonnes over the medium term by completing the ongoing capital expenditure project and infusing expertise. In the long term, it wants to increase finished steel shipments to between 12 and 15 million tonnes through the addition of new iron and steel making assets, the company statement said expecting the deal to close before the end of 2018.

“After completion, ArcelorMittal will jointly own and operate Essar Steel in partnership with Nippon Steel and Sumitomo Metal Corporation (NSSMC), the Japan’s largest steel producer and the third largest steel producer in the world. “ArcelorMittal and NSSMC expect to finance the joint venture through a combination of partnership equity (one-third) and debt (two-thirds), and ArcelorMittal anticipates that its investment in the joint venture will be equity accounted,” the statement said.

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