In a surprise development, Ruia family, the original promoters and 97 per cent equity owners of Essar Steel have made a last ditch effort to save their crown jewel from being snatched away from them by offering to pay up Rs 54,389 crore to all creditors of the company to withdraw it from the ongoing insolvency and bankruptcy procedure.
Ruias are believed to have a back-to-back agreement with Russia's VTB group to raise the amount as loan at 2-3 per cent interest (plus LIBOR of between 1-1.5 per cent). The Ruia bid covers all claims worth Rs 54,389 crore admitted before the tribunal so far. The offer put the National Company Law Tribunal in a fix as the Committee of Creditors has already accepted the ArcelorMittal bid worth Rs 50,000 crore for Essar Steel.
This is the highest bid for Essar Steel yet as suitors have lined up for the company ever since it began making operational profits due to a turnaround in the steel cycle after Centre increased import duties to prevent dumping of Chinese steel. Ruias have been forced to make a desperate attempt to save their firm after their backing to Numetal's Rs 42,000 crore offer was disqualified. Since then, Vedanta offered Rs 37,000 crore for the 10 million tonne per annum. However, the highest bid so far has been from the world's largest steel company ArcelorMittal which has offered to pay Rs 42,202 crore and an additional Rs 8,000 crore into operations over a period of time. It has also offered to pay up liabilities of other bankrupt companies Uttam Galva and KSS Petron worth Rs 7,500 crore to make itself eligible for Essar Steel bid. The ArcelorMittal bid has already been accepted by the Committee of Creditors.
Essar Steel is believed to be making operational profit at a run rate of Rs 6000 crore per annum on annual revenue of an estimated Rs 24,000 crore.
The offer includes an upfront cash payment of Rs 47,507 crore to all creditors. Essar claims this will provide 100 per cent recovery to secured creditors and lenders, and maximum recovery for unsecured creditors. According to Prashant Ruia, Director, Essar group: "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. 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."
Section 12A of the Insolvency and Bankruptcy Code, 2016 provides an option to withdraw an insolvency application by the petitioner provided it has the backing of 90 per cent of the Committee of Creditors. Though the amendments to the law introduced earlier this year has restricted such withdrawal to before invitation of expression of interest. It is now up to the National Company Law Tribunal whether it allows the Ruia offer to withdraw from bankruptcy process.