Twist in Essar tale as Ruias offer settlement
Make an offer of ~543 billion for Ess ar Steel; lenders to take a call today
The promoters of debt-ridden Essar Steel took its creditors by surprise by offering to settle the entire claims of ~543 billion under Section 12A of the Insolvency and Bankruptcy Code (IBC). The rule allows a company to exit the bankruptcy process if it offers to repay dues and 90 per cent of the lenders accept the proposal, the Ruias said.
Essar Steel said on Thursday that shareholders of the company had offered the committee of creditors (CoC) full settlement of the admitted claims of financial creditors, operational creditors, and workmen and employees of Essar Steel India (ESIL), aggregating ~543.89 billion, under Section 12A. The plan included an upfront cash payment of ~475.07 billion to all creditors, including ~455.59 billion to senior secured financial creditors, which would result in
100 per cent recovery for the lenders, the company said in a statement.
The last-minute offer by the Essar Steel promoters, the Ruia family, came as the lenders started voting on the offers made by ArcelorMittal and Vedanta. Banking sources said 92 per cent of the lenders (by voting share) voted in favour of ArcelorMittal's plan.
If the CoC accepts Essar's offer, it will be the first company among the RBI’s list of 40-odd companies sent to the National Company Law Tribunal (NCLT) for debt resolution where the promoters will repay the entire dues.
"WE BELIEVE OUR CURRENT PROPOSAL WILL PROVIDE 100% RECOVERY TO SECURED CREDITORS AND LENDERS, AND MAXIMUM RECOVERY FOR UNSECURED CREDITORS" Prashant Ruia, director of Essar group
However, the resolution professional will need to table the Ruias’ proposal at Friday’s CoC meeting. RK Bansal, CEO, Edelweiss Asset Reconstruction Company, which is a lender to Essar Steel, said the promoters’ offer came after the lenders had finished voting on ArcelorMittal. “We have not been informed of any decision by the resolution professional on the offer made. Ultimately, it depends on the RP whether he wants to table it.”
Essar said the CoC was 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requisite voting share, on the basis of which the Corporate Insolvency Resolution Process against Essar Steel might be withdrawn. “While the resolution plan currently under the CoC’s consideration takes care of only secured creditors (banks), by offering this settlement, the shareholders of ESIL are ready to pay up the entire dues. This 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,” the statement said.
It said the company got into difficulty because of external factors. “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 Prashant Ruia, director of the Essar group.
Section 12A was inserted in June, which allows the withdrawal of applications admitted under Section 7, 9 or 10 of the IBC Act.
Essar said the adjudicating authority might allow the withdrawal of the resolution application post admission with the approval of 90 per cent voting share of the CoC. Earlier, there was no such provision in the IBC or the Corporate Insolvency Resolution Process rules.
ArcelorMittal offered ~395 billion as upfront payment and ~25 billion cash available with Essar to the lenders, besides ~85 billion as additional equity into the company. Vedanta, on the other hand, offered ~350 billion as upfront payment to the banks and ~50 billion as equity into the company. Vedanta, at the same time, agreed to sweeten the offer. Essar Steel’s third suitor, VTB Bank of Russia, 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 apex court. Essar Steel had overdues of ~495 billion when it was sent to the NCLT by the lenders following an RBI directive in June last year.
The Ruias’ offer is a big setback to ArcelorMittal’s plan to enter India by acquiring a distressed asset. It was forced by the Supreme Court to pay the debt of two defaulting
companies where ArcelorMittal or its founder LN Mittal had a stake. Following the SC order, ArcelorMittal paid ~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 to become eligible for the bidding process which started few days later.
On October 20, the resolution professional (RP) of GPI Textiles, a company controlled by Pramod Mittal, 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. ArcelorMittal had said it was 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. Essar Steel got into difficulty because of external factors like lack of gas supply and dumping of cheap steel by China, the company said.