Prince Mathews Thomas
The Essar Steel acquisition saga has taken a new turn with the promoters submitting a proposal to the Committee of Creditors (CoC), eclipsing that of ArcelorMittal.
The Ruias offer includes full settlement of the entire admitted claims of the financial creditors, operational creditors, and workmen and employees of Essar Steel India Ltd, aggregating Rs 54,389 crore, under Section 12A of the Code.
According to documents seen by Moneycontrol, Essar promoters new offer eclipses that of ArcelorMittal.
ArcelorMittal's offer stood at Rs 42,218 crore, a difference of Rs 12,187 crore. The steel major had also offered equity infusion of Rs 8,000 crore.
The Ruias offer includes upfront cash payment of Rs 47,507 crore to all creditors, including Rs 45,559 crore to senior secured financial creditors.
"Upfront Rs 45,559 crore payment means 100% recovery for senior secured financial creditors," the company said.
New turn
The development came even as the CoC of Essar Steel was voting on ArcelorMittal's offer.
Sources said the bankers were set to announce the voting results by 6pm. But by then, the new offer from the Ruias had already reached the lenders.
The LN Mittal-company was earlier declared as the highest bidder in the auction for the steel company.
"The shareholders of ESIL are ready to pay up the entire dues that will lead to not only maximum recovery for the lenders, but also for all other classes of creditors, thus taking the Company out of the corporate insolvency resolution process under Section 12A of the IBC, which was introduced in June 2018 by way of an amendment," said the Essar Steel promoters.
Section 12A
The section says that a resolution application can be withdrawn as with the approval of 90 percent of the lenders. But, it adds, the withdrawal can only happen before the bidding process starts.
The Ruias contend that the new regulation only came in June, whereas the process of Essar Steel's auction had been set off in October last year.
ArcelorMittal seems to agree the section doesn't apply in Essar Steel's case.
"Our understanding is that the IBC’s section 12A does not apply to the resolution process of Essar Steel," it said in a statement.
But it added: "ArcelorMittal has complied with the Supreme Court order, we have settled the overdues of Uttam Galva and KSS Petron and we have the bank guarantees in place for the payment for Essar Steel. We expect the process to continue as per the clear terms of the IBC."
Sources close to the company added that the Ruias should have paid before. "This desperate last attempt only serves to clearly demonstrate they are wilful defaulters as presumably if they can pay now they could have paid before but treated the company and its creditors with casual disregard and the belief they could get the company back at a significant haircut. If the law is followed, this offer should be given short shrift,” added the executive.
ArcelorMittal's case
At the same time, the new development puts a question mark over the Insolvency process that was underway.
ArcelorMittal has paid Rs 7,649 crore to clear dues of Uttam Galva Steel and KSS Petron. If Essar Steel lenders do accept the offer of the Ruias, ArcelorMittal may eventually end up with just Uttam Galva Steel’s asset.
Essar Steel's spokespersons didn't comment on the financing of the offer. But sources said that VTB Bank may continue to play a role in the new offer too. The Russian bank was the lead shareholder of Numetal, which didn't meet the Supreme Court order to clear dues to be eligible to bid.
Sources told Moneycontrol that the Ruias may rope in the bank to raise funds.
"Essar Steel got into difficulty because of external factors," said Prashant Ruia, Director, Essar.
"Regardless, the value and quality of the asset can be ascertained from the interest shown and value offered by all the global steel majors... In fact, even after the onset of the insolvency resolution process, the shareholders of Essar Steel had made offers to settle the debt of the company, but the lenders did not accept those offers," he added.
Adding that the new proposal meets the underlying principle of the insolvency process, which its maximising the value of the asset.
The final say though will be in the hands of Essar Steel lenders.
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