Ruias, the promoters of Essar Steel, took the lenders by surprise by making a last minute offer of Rs 543 billion under Section 12A of the Insolvency and Bankruptcy Code (IBC), which allows a company to exit the bankruptcy process if it offers to repay the dues of all lenders and 90 per cent of the lenders agree.
In a statement, Essar Steel said the shareholders of the company have offered the Committee of Creditors (CoC) full settlement of the entire admitted claims of the financial creditors, operational creditors, and workmen and employees of Essar Steel India (ESIL), aggregating to Rs 543.89 billion, under Section 12A of the Code. The plan includes an upfront cash payment of Rs 475.07 billion to all creditors, including Rs 455.59 billion to the senior secured financial creditors, resulting in 100 per cent recovery for lenders.
Ruias' last minute offer came as lenders started voting on two offers made by ArcelorMittal and Vedanta. If lenders agree, Essar Steel will be the first company in the Reserve Bank of India’s list of 40-odd companies which were sent to the National Company Law Tribunal (NCLT) for debt resolution.
Essar said the CoC is empowered to consider and approve this settlement plan with the requisite voting share, on the basis of which the corporate insolvency resolution process against Essar Steel may be withdrawn. ”While the resolution plan currently under the CoC’s consideration takes care of only the secured creditors (i.e. the banks), by offering this settlement, the shareholders of ESIL are ready to pay up the entire dues that will lead to not only maximum recovery for the lenders, but also for all other classes of creditors, thus taking the Company out of the corporate insolvency resolution process under Section 12A of the IBC, which was introduced in June 2018 by way of an amendment,” the statement said.
"Essar Steel got into difficulty because of external factors. Regardless, the value and quality of the asset can be ascertained from the interest shown and value offered by all the global steel majors. It has been our constant endeavour to arrive at the best resolution for all stakeholders of ESIL. In fact, even after the onset of the insolvency resolution process, the shareholders of Essar Steel had made offers to settle the debt of the company, but the lenders did not accept those offers. We believe our current proposal will provide 100 per cent recovery to secured creditors and lenders, and maximum recovery for unsecured creditors. This is well in excess of that offered in the proposal under consideration, and is in line with value maximisation, which is the underlying principle of the IBC process,” said Prashanth Ruia, director of Essar group.
Section 12A was inserted in June this year which allowed withdrawal of application admitted under Section 7, 9 or 10 of the IBC Act. It said the adjudicating authority may allow withdrawal of resolution application post admission with the approval of 90 per cent of voting share of the CoC. Earlier, there was no provision in the IBC or the Corporate Insolvency Resolution Process (CIRP) rules in relation to permissibility of withdrawal post admission of a CIRP application.
ArcelorMittal had offered Rs 390 billion as upfront payment to banks and Rs 85 billion as additional equity into the company. Vedanta, on the other hand, had offered Rs 340 billion as upfront payment to the banks and Rs 50 billion as equity into the company. Vedanta had, at the same time, agreed to sweeten the offer. Essar Steel’s third suitor, VTB Bank of Russia had also agreed to make a generous offer and moved the Supreme Court to get its approval for the same. Its petition is pending with the SC as of now.
Essar Steel had overdues of Rs 495 billion when it was sent to the NCLT by the lenders last year following an RBI directive in June last year.
The approval to the Ruia offer is a big setback to ArcelorMittal’s plan to enter India by acquiring a distressed asset. It was forced by the Supreme Court (SC) to pay the debt of two defaulting companies where ArcelorMittal or its founder LN Mittal had a stake. Following the SC order, ArcelorMittal paid Rs 75 billion to Indian lenders after Uttam Galva Steels and KSS Petron defaulted on bank loans. Earlier, ArcelorMittal had sold stakes in the two companies in February this year to become eligible for the bidding process which started few days later.
On October 20, the resolution professional of GPI Textiles, a Pramod Mittal group company, also informed the CoC of Essar Steel and filed a caveat that ArcelorMittal should repay the dues of the company to the public sector banks under Section 29A of the IBC as Pramod is younger brother of LN Mittal. The RP also filed a caveat with the NCLT that it should be heard before clearing any transaction. Pramod Mittal was promoter of four companies including Ispat Profiles and Gontermann Peipers, both of which too have failed to repay their loans. ArcelorMittal had said it is not liable for Pramod Mittal’s loan defaults.
Deutsche Bank also raised an objection to ArcelorMittal India, a subsidiary of ArcelorMittal, paying the dues of Uttam Galva Steels saying it has not received a single penny for its $14 million exposure. It also asked the CoC whether AM India's offer to take over Uttam Galva's loans is as per the RBI’s norms as RBI allows sale of loans only to banks, financial institutions and non-banking finance companies.
The Ruias had blamed dumping of cheap steel by China, lack of gas availability and terror act on its slurry carrying pipeline for its poor financial health. After the National Democratic Alliance government increased import duty on steel products, the financial health of all steel companies including Essar Steel improved in the last few quarters.
The Essar Saga
Aug. 2, 2017: NCLT, Ahmedabad initiates insolvency action against Essar Steel
Feb 6th 2018: ArcelorMittal sells stake in two defaulting companies Uttam Galva, KSS Petron to get eligible to bid for Essar Steel
Feb. 12: ArcelorMittal, VTB Capital-consortium Numetal submit bids, Ruia owned entity owned 25 per cent stake in Numetal
Feb. 21, 2018: Legal advisors asks RP of Essar Steel to reject both bids on failure to meet criteria on bankruptcy laws which disallows promoters of defaulting companies to bid
March 21: Creditors reject first round of bids and seek fresh offers for Essar; JSW Steel partners with Numetal to bid in the second round after dropping Ruia as equity partner. Vedanta also joins the race
Sept 7th: NCLAT says Numetal’s second bid eligible, Asks Mittal to clear dues by Sept 11, Mittal moves SC
Oct 4th: SC allows both Numetal, ArcelorMittal to bid provided both clear their dues to banks; Mittal pays UGSL/KSS dues but Numetal is unable to pay dues of Essar group
Oct 24th: Banks begin voting on Vedanta, ArcelorMittal offers
In a statement, Essar Steel said the shareholders of the company have offered the Committee of Creditors (CoC) full settlement of the entire admitted claims of the financial creditors, operational creditors, and workmen and employees of Essar Steel India (ESIL), aggregating to Rs 543.89 billion, under Section 12A of the Code. The plan includes an upfront cash payment of Rs 475.07 billion to all creditors, including Rs 455.59 billion to the senior secured financial creditors, resulting in 100 per cent recovery for lenders.
Ruias' last minute offer came as lenders started voting on two offers made by ArcelorMittal and Vedanta. If lenders agree, Essar Steel will be the first company in the Reserve Bank of India’s list of 40-odd companies which were sent to the National Company Law Tribunal (NCLT) for debt resolution.
Essar said the CoC is empowered to consider and approve this settlement plan with the requisite voting share, on the basis of which the corporate insolvency resolution process against Essar Steel may be withdrawn. ”While the resolution plan currently under the CoC’s consideration takes care of only the secured creditors (i.e. the banks), by offering this settlement, the shareholders of ESIL are ready to pay up the entire dues that will lead to not only maximum recovery for the lenders, but also for all other classes of creditors, thus taking the Company out of the corporate insolvency resolution process under Section 12A of the IBC, which was introduced in June 2018 by way of an amendment,” the statement said.
"Essar Steel got into difficulty because of external factors. Regardless, the value and quality of the asset can be ascertained from the interest shown and value offered by all the global steel majors. It has been our constant endeavour to arrive at the best resolution for all stakeholders of ESIL. In fact, even after the onset of the insolvency resolution process, the shareholders of Essar Steel had made offers to settle the debt of the company, but the lenders did not accept those offers. We believe our current proposal will provide 100 per cent recovery to secured creditors and lenders, and maximum recovery for unsecured creditors. This is well in excess of that offered in the proposal under consideration, and is in line with value maximisation, which is the underlying principle of the IBC process,” said Prashanth Ruia, director of Essar group.
Section 12A was inserted in June this year which allowed withdrawal of application admitted under Section 7, 9 or 10 of the IBC Act. It said the adjudicating authority may allow withdrawal of resolution application post admission with the approval of 90 per cent of voting share of the CoC. Earlier, there was no provision in the IBC or the Corporate Insolvency Resolution Process (CIRP) rules in relation to permissibility of withdrawal post admission of a CIRP application.
ArcelorMittal had offered Rs 390 billion as upfront payment to banks and Rs 85 billion as additional equity into the company. Vedanta, on the other hand, had offered Rs 340 billion as upfront payment to the banks and Rs 50 billion as equity into the company. Vedanta had, at the same time, agreed to sweeten the offer. Essar Steel’s third suitor, VTB Bank of Russia had also agreed to make a generous offer and moved the Supreme Court to get its approval for the same. Its petition is pending with the SC as of now.
Essar Steel had overdues of Rs 495 billion when it was sent to the NCLT by the lenders last year following an RBI directive in June last year.
The approval to the Ruia offer is a big setback to ArcelorMittal’s plan to enter India by acquiring a distressed asset. It was forced by the Supreme Court (SC) to pay the debt of two defaulting companies where ArcelorMittal or its founder LN Mittal had a stake. Following the SC order, ArcelorMittal paid Rs 75 billion to Indian lenders after Uttam Galva Steels and KSS Petron defaulted on bank loans. Earlier, ArcelorMittal had sold stakes in the two companies in February this year to become eligible for the bidding process which started few days later.
On October 20, the resolution professional of GPI Textiles, a Pramod Mittal group company, also informed the CoC of Essar Steel and filed a caveat that ArcelorMittal should repay the dues of the company to the public sector banks under Section 29A of the IBC as Pramod is younger brother of LN Mittal. The RP also filed a caveat with the NCLT that it should be heard before clearing any transaction. Pramod Mittal was promoter of four companies including Ispat Profiles and Gontermann Peipers, both of which too have failed to repay their loans. ArcelorMittal had said it is not liable for Pramod Mittal’s loan defaults.
Deutsche Bank also raised an objection to ArcelorMittal India, a subsidiary of ArcelorMittal, paying the dues of Uttam Galva Steels saying it has not received a single penny for its $14 million exposure. It also asked the CoC whether AM India's offer to take over Uttam Galva's loans is as per the RBI’s norms as RBI allows sale of loans only to banks, financial institutions and non-banking finance companies.
The Ruias had blamed dumping of cheap steel by China, lack of gas availability and terror act on its slurry carrying pipeline for its poor financial health. After the National Democratic Alliance government increased import duty on steel products, the financial health of all steel companies including Essar Steel improved in the last few quarters.
The Essar Saga
Aug. 2, 2017: NCLT, Ahmedabad initiates insolvency action against Essar Steel
Feb 6th 2018: ArcelorMittal sells stake in two defaulting companies Uttam Galva, KSS Petron to get eligible to bid for Essar Steel
Feb. 12: ArcelorMittal, VTB Capital-consortium Numetal submit bids, Ruia owned entity owned 25 per cent stake in Numetal
Feb. 21, 2018: Legal advisors asks RP of Essar Steel to reject both bids on failure to meet criteria on bankruptcy laws which disallows promoters of defaulting companies to bid
March 21: Creditors reject first round of bids and seek fresh offers for Essar; JSW Steel partners with Numetal to bid in the second round after dropping Ruia as equity partner. Vedanta also joins the race
Sept 7th: NCLAT says Numetal’s second bid eligible, Asks Mittal to clear dues by Sept 11, Mittal moves SC
Oct 4th: SC allows both Numetal, ArcelorMittal to bid provided both clear their dues to banks; Mittal pays UGSL/KSS dues but Numetal is unable to pay dues of Essar group
Oct 24th: Banks begin voting on Vedanta, ArcelorMittal offers
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