If the resolution professional fails to receive any bid, it will recommend liquidation of the company by April-end and Essar Steel’s assets will be sold.
Essar Steel. Credit: PTI
Mumbai: The debt resolution of Essar Steel has turned into a full-scale corporate war between VTB Bank of Russia and L.N. Mittal’s ArcelorMittal, both of which have made multi-billion dollars offers for the Gujarat-based steel company.
All eyes are now on the lenders’ meeting scheduled on Thursday. The lenders are expected to call for a second round of bidding.
According to sources, legal advisers are not convinced about the eligibility of either bidder. ArcelorMittal’s bid is “ineligible” since the company had investments in Uttam Galva Steels, a non-performing asset. ArcelorMittal’s promoter, L.N. Mittal, also owned a 33% stake in Kazakhstan-based KSS, which in turn held a 100% stake in KSS Petron, another defaulter to Indian banks.
According to the Insolvency and Bankruptcy Code (IBC), promoters of defaulting companies cannot bid for other stressed assets.
Similarly, a Singapore based trust owns a 25% stake in Numetal, in which Rewant Ruia, son of Ravi Ruia, is a beneficiary.
Since the Ruia family was the promoter of Essar Steel when the company defaulted on its Rs 440 billion loans, they were not eligible to bid for Essar Steel, according to the IBC.
VTB Bank has warned it will move court if its bid is incorrectly rejected.
“Lenders are currently playing it safe. They do not want any litigation which will question their decision. So they are expected to call for a second round of bidding in which both companies and new firms can join the race with a legally clear corporate structure,” said a source close to the development.
If the resolution professional fails to receive any bid, it will recommend liquidation of the company by April-end and Essar Steel’s assets will be sold.
To garner support, Mittal recently met finance minister Arun Jaitley.
VTB Bank executives, however, said they were confident the government would not pay much attention since the bid by ArcelorMittal was “ineligible”. “The Russian government is backing our bid for Essar Steel, and we are ready to put more money on the table if need be,” a Numetal executive said.
ArcelorMittal had earlier said its bid for Essar Steel met the eligibility criteria. But according to the co-promotion agreement signed with the Miglani family in 2009, ArcelorMittal Netherlands BV was to have the right to appoint half of the non-independent directors of Uttam Galva Steels. Besides, a number of decisions relating to Uttam Galva Steels, such as business plans, corporate restructuring, employee and director compensation, capital expenditures, loans and investments exceeding a threshold required ArcelorMittal’s consent.
“The method adopted by Mittal to qualify to submit a resolution plan by selling its 29% stake in Uttam Galva Steels is not a procedure prescribed under the Act,” the former law officer said. “The strategy adopted by ArcelorMittal is a device to circumvent the mandate of Section 29A (c) of the IBC,” the officer added.
By arrangement with Business Standard.