Tata Steel finally bags Bhushan Steel; NCLT imposes fine on two challengers

Is it finally curtains down on one of the country's biggest bankruptcies to go under the hammer? The National Company Law Tribunal (NCLT) yesterday approved Tata Steel's Rs 35,200 crore bid for the beleaguered Bhushan Steel Ltd (BSL) with debt of over Rs 56,000 crore. This is reportedly Tata Steel's second-biggest acquisition after the Corus Group acquisition in 2007.
 
Tata Steel will implement the resolution plan through its wholly-owned subsidiary Bamnipal Steel Limited (BNPL). In a regulatory filing on Tuesday, Tata Steel said that as per the terms of approved resolution plan, BNPL will initially subscribe to 72.65 per cent equity share capital of BSL at face value - Rs 2 per share - for an aggregate amount of Rs 158.89 crore. "The financial creditors shall receive a total consideration of Rs 35,200 crores for the settlement of the existing financial debt of BSL. The above settlement includes consideration for novation of a portion of the debt to BNPL," said the BSE filing, adding that "the financial creditors shall be allotted equity shares by virtue of conversion of loan amount of Rs 14.5 crores at a face value of Rs 2 each. The Resolution Plan also requires financial creditors to invoke pledge on existing equity shares of BSL."

The transaction will be funded through a combination of equity subscription and inter-corporate loans, of which up to Rs 9,000 crore loans has an option of conversion into equity shares of BSL. Furthermore, Tata Steel said that additional funds would be infused by BNPL to repay the admitted cost of the corporate insolvency resolution process and outstanding employee dues. However, reportedly, the resolution plan excludes operational creditors settlement amount of Rs 1,200 crore.

"The outstanding redeemable preference shares of the Company would be purchased by BNPL, and to the extent not transferred to BNPL, would be redeemed by the Company on the Closing Date, in terms of the Resolution Plan, in either case for an aggregate consideration of Rs100," added the filing.

This announcement will bring much relief to fraud-ravaged Punjab National Bank, as it was the term loan consortium leader for BhushanSteel. In fact, PNB reportedly had an exposure of close to Rs 5,000 crore, a sizeable chunk of which will now come back to coffers and help it to partly offset the damage wrought by Nirav Modi over the past seven years.

Significantly, the tribunal also dismissed a plea filed by the employees of Bhushan Steel opposing Tata Steel's bid and imposed a fine of Rs 1 lakh. The employees had contended that Tata Steel was not eligible under section 29 (A) of the Insolvency and Bankruptcy Code (IBC). An identical fine was slapped on Larsen and Toubro, an operational creditor of Bhushan Steel, which had sought a higher priority in loan recovery, at par with the financial creditors. Perhaps, this step will help reduce litigation drama for bankruptcy cases going forward. So far, almost all companies referred to the NCLT have been embroiled in pleas and counter pleas, with little heed paid to the 270-day deadline specified for insolvency resolution under the IBC.

Bhushan Energy's plea to continue its power purchase agreement with Bhushan Steel was also rejected. Tata Steel's approved resolution plan has reportedly proposed terminating the PPA with the energy company.

So, barring further challenges to this decision, Tata Steel has just added quite a feather in its cap. This acquisition will not only help it to tighten its grip on the country's eastern region but perhaps also help it to snatch the title of 'India's largest steel maker' from JSW Steel.

Tata Steel is also due to announce its Q4 FY18 results today, which according to a Reuters poll will mark the company's return to green. The company had posted a loss of over Rs 1,100 crore in the year ago period, but the poll predicts a consolidated net profit of over Rs 2,500 crore this time round.

With PTI inputs