Lenders turn down Uttam Galva's offer to pay 51% debt

Lenders of Uttam Galva Steels have turned down an offer from the company to pay 51 percent of its outstanding debt, citing an ongoing forensic audit, and expressed unwillingness to take a large haircut.

At a hearing at the Mumbai bench of the National Company Law Tribunal on Tuesday, the company's lenders, led by State Bank of India, also indicated that Uttam Galva will need to pay the entire loan amount.

The company's debts amount to Rs 5,654 crore.

The debt-laden steel maker, which is part of the Reserve Bank of India's second list of loan defaulters that have been referred to the bankruptcy tribunal for insolvency proceedings, on March 15 wrote to SBI, proposing a "one-time settlement" of all dues of lenders "through an upfront payment mechanism".

NCLT has given both sides a week’s time to settle the matter. If not, Uttam Galva will be admitted under the Insolvency and Bankruptcy Code, eventually leading to its auction.

"Most probably, it will get admitted because lenders do not want to take a large haircut and also face legal implications. We also have enough provisions in the case," a bank official said. The official didn't want to be named.

Audit

Sources added that the forensic audit is being done by Grant Thornton, and initial findings suggest diversion of funds.

"A forensic audit is still outstanding in their case and till then we will not decide on any repayment plan by the company. We have said it is not possible for now. A Grant Thornton report has suggested diversions, so we want that cleared before we take a call whether we want to accept Uttam Galva’s offer or not," the official quoted above said.

While messages to Uttam Galva's senior officials didn't elicit a response, a source close to the company said: "An audit was ordered two years ago, and was completed fully. The official report is not released. There was nothing negative in the draft report."

Loan

Lenders have also suggested that ArcelorMittal continues to have responsibility regarding a secured loan of Rs 1,400 given to Uttam Galva.

As reported earlier, minority shareholders of Uttam Galva had written to the lenders asking if permission was given to ArcelorMittal to divest its stake in the company.

"Arcelor was permitted to sell its shares to the other sponsors only if no event of default had occurred," the minority shareholders said in their letter. "The company agreed that it would not recognize or register any transfer of the shares held by ArcelorMittal without the approval of State Bank of India," they said.

The stake sale became necessary after an amendment in the IBC barred promoters of defaulting companies from bidding for stressed assets. ArcelorMittal exited Uttam Galva and got itself declassified as its promoter, in order to bid for Essar Steel.

A source close to ArcelorMittal, however, said that the company was not obliged to seek permission from Uttam Galva's lenders to sell its stake.

"ArcelorMittal was not obliged to seek permission from lenders before selling the Uttam Galva stake because it was a sale to the promoter; for example, the Miglanis,” said the source.

"The intention of any NDU was a tool to ensure that a 51 percent block would be maintained between the Miglanis and ArcelorMittal. That was clearly maintained when we sold our shareholding to the Miglanis.  There is no breach of any agreement," the source added.

Uttam Galva on Tuesday disclosed its shareholding in an announcement to BSE. The company's shareholding, as on March 31, did not include ArcelorMittal.

On Saturday, Uttam Galva announced a net loss of Rs 295.39 crore for the quarter ended March, as against a net profit of Rs 138.88 crore during the corresponding quarter last year.