There seems to be no end to the hassles in bankruptcy proceedings of Essar Steel as the market is abuzz with the news that rebids are likely to occur for Essar Steel to ensure IBC (Insolvency and Bankruptcy Code) compliance.
Over the weekend the legal advisers finalised their decision for a rebid and subsequently RP (Resolution Professional), Satish Gupta informed lenders that both the bids made by Arcelor Mittal and Numetal may not be valid under the current IBC and thus lenders led by SBI (State Bank of India) will have to seek another round of bids from both the companies. The CoC (Committee of Creditors) is expected to meet on 21 Mar’18 in order to discuss the option of second round of bidding for Essar Steel.
What all factors led to the rebidding mess?
Essar Steel, a flagship company of Ruia’s family, is one of the dozen companies against which RBI (Reserve Bank of India) had initiated bankruptcy proceedings last year in Jun’17. The company is due to repay INR 49,000 crore to its lenders.
In Feb’18 the race for buying the bankrupt Essar Steel boiled down to just two companies Numetal and Arcelor Mittal (AM). While Arcelor Mittal’s owner Mr. Lakshmi Mittal is known for building his steel empire by buying bankrupt companies across the globe and was waiting since long for the direct entry into Indian steel market; Numetal is a joint venture with majority stake of Russia’s VTB Bank and minority interest of one of the Ruia’s family member- Rewant Ruia.
However, there were few legal loopholes in case of both the bidders which has put the market in complete puzzlement.
In Numetal, Rewant Ruia-the younger son of Ravi Ruia (Co-founder of Essar Steel) has a minority stake and as per the amendment under section 29A of IBC that was introduced in Jan’18; wilful defaulters, defaulting promoters, and related persons are barred from bidding under the insolvency process.
Although Rewant Ruia does not have any say in the management of Numetal or enjoys a board representation, ‘Numetal’ – the SPV (special purpose vehicle) floated by private equity arm of Russian lender VTB Bank and Rewant Ruia, claimed that if need be, the other shareholders will buy out Rewant’s stake in the company.
In case of Arcelor Mittal, the company’s bid came in doubt as its Indian joint venture Uttam Galva is declared as a defaulter and is in NCLT now and as per section 29A, of IBC the promoters having stake in defaulting company are also barred from bidding. Although AM recently sold its 29% stake in bankrupt Uttam Galva Steel to Miglani family to meet the eligibility clause under section 29A, its name is still present in the list of promoters of Uttam Galva with the stock exchanges.
Now as both the companies have legal loopholes, the RP suggested rebidding of both the companies. However, market participants believe that the Numetal case was stronger than the Arcelor Mittal’s legal loophole and just to give time to Arcelor Mittal to get its name removed from defaulting Uttam Galva’s promoters list, it is being ensured that the rebids should happen for Essar Steel. According to sources, the last date for submitting fresh bids is likely to be set on 2 Apr’18.
A fresh auction will enable Arcelor-Mittal and Numetal to revise their bids in line with Section 29A of IBC. Also only those that have filed expressions of interest can rebid for Essar Steel, which will keep other large corporates out of the race.
The resolution process has to be concluded soon as the 270-day timeframe within which the insolvency exercise has to be completed ends on April 28. After which Essar Steel will have to be liquidated if a resolution plan hasn’t been agreed upon.
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