The deadline for submitting bids for the beleaguered Essar Steel, put up for sale under Insolvency and Bankruptcy Code (IBC), ends today and it's reportedly looking like a tug of war between the Ruias and L.N. Mittal, though Tata Steel is also expected to enter the fray.
Yes, the government has amended the Insolvency and Bankruptcy Code (IBC) to prevent promoters of defaulting companies to bid for stressed assets. Yes, Essar Steel, with over Rs 43,000 crore of debt on its books, was among the initial 12 companies identified by the RBI for insolvency proceedings and was controlled by siblings Shashi and Ravi Ruia. And yes, ArcelorMittal was a shareholder in Uttam Galva, which was taken to the National Company Law Tribunal in April last year after defaulting on Rs 110 crore loans. But the parties involved seem to have found neat solutions to stay eligible to bid.
Last week, according to The Economic Times, L.N. Mittal-led ArcelorMittal cashed out of its investment in Uttam Galva-at a loss-to avoid any last-minute controversy and has joined hands with Japanese giant Nippon for the bid. The Ruia family got a lot more creative and has pinned its hopes on a special purpose vehicle, Numetal Mauritius, in which leading Russian bank VTB is the largest shareholder followed by Russia's Tyazprom Export, a construction engineering and management consulting company that specialises in steelworks. Rewant Ruia, son of Essar cofounder Ravi Ruia, is the minority partner, the shareholding held via a Singapore-based trust. Sources close to Essar told the business daily that since the Ruias are a minority partner, the Numetal bid will not be in violation of the IBC's related party clauses.
Tata Steel, the other potential contender, is widely expected to be less aggressive than these two, while Vedanta and JSW are unlikely to submit binding offers. Satish Kumar Gupta of Alvarez and Marsal (A&M) is the resolution professional (RP) appointed to oversee Essar Steel.
Though the liquidation value has reportedly been fixed at Rs 20,000 crore, the Numetal bid is expected to be in the range of Rs 35,000-40,000 crore. But that's no shoo-in since the world's largest steelmaker, ArcelorMittal, is widely expected to be as aggressive. Mittal has wanted to build a steel plant in the country since 2005 but has been repeatedly thwarted by regulatory hassles. Essar's 10 million tonne steel plant in Hazira, Gujarat-India's largest single-location flat steel plant-will fit neatly into the company's plan to create a sizable footprint in the Rs 3.15 lakh crore Indian steel market. The Ruias, meanwhile, will not want to let go of their hold at a time when steel prices have shot up 15% in the past seven to eight months. Moreover, according to the World Steel Association, steel production in India is projected to grow at 7.1% in 2018, the highest rate among the top 10 steel-using countries.
One hopes that the bidding war does not see the IBC amendment get creatively thwarted, because that will only open the floodgates for other defaulting promoters to get back in on the action.