Reserve price at Rs 9,588 cr is a steep 38% haircut, which is higher than the27% hit that the bank would take post recovery through IBC.
State Bank of India on Wednesday put on sale its stressed exposure to Essar Steel India worth Rs 15,431 crore. Bids have been invited at a reserve price of Rs 9,588 crore, implying a fairly steep haircut of 38% and buyers must pay the entire amount in cash .
The haircut of 38% is higher than the near 27% hit that the the bank would take post recovery through the corporate insolvency resolution if the ArcelorMittal’s resolution plan gets the National Company Law Tribunal (NCLT)’s nod. However, the provisioning requirement is becoming a burden for the lender at near 100% of the value of the exposure. In fact Bank of Baroda sold its Essar Steel exposure a few months ago.
“The resolution plan has been approved and filed in NCLT Ahmedabad. As per approved resolution plan of AMIPL (ArcelorMittal India Pvt Ltd), the minimum recovery to SBI is `11,313.42 crore. Reserve price of Rs 9, 587.64 crore is on the basis of NPV of minimum recovery discounted @18% with a time factor of one year,” the public sector bank (PSB) said in a sale document.
SBI’s total exposure to the asset includes a mix of various facilities, including working capital, term loans, corporate loans, export performance bank guarantees and standby letters of credit.
“The facility may be assigned in whole or in part and all the security in relation to the same will be transferred and shared pari-passu to the extent of the amount of facility assigned. In case, the amount is realised prior to one year, the buyer must offer a claw back option based on the time factor,” the tender read.
NCLT Ahmedabad is expected to pronounce its judgment on the “maintainability” of the settlement proposal by Essar Steel Asia Holdings (ESAHL), made on behalf of the Ruias, by January 31 after after an appeals tribunal last week urged a speedy decision on the pending insolvency proceedings.As is known, more than 90% of the committee of creditors had voted in favour of the bid by ArcelorMittal which has promised Rs 39,500 crore by way of cash upfront and is awaiting approval from the NCLT.
The offer from the Essar Steel promoters to pay Rs 54,389 crore towards a full settlement of the entire admitted claims of the financial creditors, operational creditors, and workmen and employees of Essar Steel came the day after the CoC approved ArcelorMittal’s proposal. The package included an upfront cash payment of Rs 47,507 crore to all creditors, including a payment of Rs 45,559 crore to the senior secured financial creditors.
According to the tender floated by SBI, interest parties that can include asset reconstruction companies, banks, non-banking financial companies and foreign investors could submit expressions of interest by January 18, while e-bidding for the account will be held on January 30.
The delay in litigation aside, bankers have been resorting to all-cash deals in order to boost cash recoveries and to ease provisioning burden on the back of ageing non-performing assets.
Essar Steel, which owes lenders close to Rs 49,000 crore, is currently undergoing corporate insolvency resolution process under the Insolvency and Bankruptcy Code and is one of the first 12 bad loan accounts identified by the Reserve Bank of India (RBI) for immediate reference under the IBC.