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ArcelorMittal sweetens bid for Essar Steel, challenges NCLAT ruling

BusinessToday.In     September 11, 2018

The long-drawn battle for Essar Steel is now embroiled in yet another legal tangle. ArcelorMittal has moved the Supreme Court challenging the National Company Law Appellate Tribunal's latest ruling on the eligibility of the two leading contenders. So, although the Committee of Creditors (CoC) of the beleaguered steel company finally opened the bids submitted in the second round, it has decided to await the apex court's decision on ArcelorMittal's petition before announcing a highest bidder.

On Friday, a two-member bench of NCLAT had ruled that Numetal's second bid was eligible but the same by ArcelorMittal will qualify only if it clears all outstanding dues of the defaulting firms it was previously associated with. The bench further set a deadline of September 11 for the world's largest steel producer to clear the Rs 7,000 crore dues of Uttam Galva Steel and KSS Petron in other to remain in the race.

"The thinking of the company [ArcelorMittal] is that the NCLAT order is flawed as it allows Numetal to bid after changing its shareholding. But even though ArcelorMittal has sold its shares in defaulting companies, still that is not enough," an executive told MoneyControl.

Numetal's first bid was rejected due to the 25% share owned by Rewant Ruia, the son of Essar Steel founder Ravi Ruia, since he was deemed a related party. JSW Steel bought out this contentious stake ahead of the second bidding round.

Simultaneously, the Lakshmi Mittal-led company also sweetened its second bid for Essar Steel before the bids were opened, which the NCLAT ruling permitted. Sources told The Economic Times that it has upped its offer to Rs 42,000 crore, along with a commitment to repay past dues as per the NCLAT's ruling. The consortium of ArcelorMittal and Japan's Nippon Steel & Sumitomo Metal Corporation had previously made an offer in the region of Rs 38,500 crore.

This move by ArcelorMittal upstages the Rs 37,000 crore bid by Russia's VTB Group-backed Numetal as well as Anil Agarwal-led Vedanta Group's offer, estimated at Rs 30,000-35,000 crore. However, according to sources, although its bid is higher, attached conditions could complicate the choice for the lenders. The latter are reportedly keen to avoid any further litigation that may arise from the decisions they take. It is still not clear whether Numetal will also revise its offer.

In a statement, ArcelorMittal confirmed having submitted a revised proposal to Essar Steel India Limited's (ESIL) CoC. "The financial terms of the proposal are confidential, but represent a material increase to the previous offers made by the company," read the statement. "The revised offer, which includes a commitment to pay the entire amount due to the financial creditors of Uttam Galva and KSS Petron, therefore represents unprecedented value to all concerned creditors." The company added that the revised offer "demonstrates its serious commitment to India, creditor banks and all ESIL's stakeholders".

According to the daily, ArcleorMittal has also asked the CoC to "confirm the overdue amounts of Uttam Galva and KSS Petron and the modality of the payment". The company wants the dues repayment to be dependent on bankers negotiating exclusively with ArcelorMittal for Essar Steel.

Despite the fact that Essar Steel boasts the third biggest debt pile (around Rs 49,000 crore) among the initial 12 companies identified by the RBI for insolvency proceeding, it is a big prize to land. Steel tycoon 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 - fits neatly into the company's plan to create a sizable footprint in the Indian steel market.

Numetal, likewise, stands to gain much from the acquisition since India is expected to overtake Japan to become the world's second largest steel producer soon. In fact, the government expects domestic production in India to double by 2031, with growth rate expected to go above 10% in FY18.

The offer by the Russian VTB Bank-led consortium is believed to include Rs 2,000 crore of debt owed by Odisha Slurry Pipeline Infrastructure Ltd, which transports raw material from Odisha to Essar Steel's Hazira complex in Gujarat. However, a source told the daily that while ArcelorMittal's revised offer "covers the entire secured principal debt of Essar Steel", it is not clear whether it includes payment of dues for OSPIL.

While everything seems up in the air currently, one thing is for sure: The CoC will be hoping for a speedy resolution here on.

With PTI inputs

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