In June 2017, the RBI (Reserve Bank of India) identified the first 12 corporate accounts for bankruptcy proceedings representing about 25% of the gross bad loans in the banking system. The one criteria for shortlisting these accounts was that they should have outstanding dues of at least INR 5,000 crore of which at least 60% should have been classified as non-performing by banks as on 31 March 2016.
Let us study what has happened in the case of bankruptcy proceedings of various steel companies since last year.
1. Electrosteel Steels
Vedanta selected as the successful bidder for Electrosteel Steels
On 31 Mar’18, Anil Agarwal owned Vedanta group emerged as the winner in its bid for acquiring bankrupt Electrosteel Steels.
While Tata Steel, Dalmia group, Vedanta and Edelweiss were the four groups who have submitted binding bids to buy Electrosteel Steels, Tata Steel and Vedanta emerged as the top two contenders for the same with highest bidding amounts of INR 3,500 crore and INR 4,500 crore respectively.
Electrosteel Steels has a planned steelmaking capacity of 2.51 MnT and a commissioned capacity of 1.5 MnT in Bokaro district of Jharkhand. In 2014, de-allocation of company’s coal block led to its increased input cost burdening the company’s finances in return. The company had a total debt of INR 13,000 crore and owed INR 5,000 crore to the State Bank of India alone with INR 191.60 crore to the operational creditors.
Vedanta’s interest in Electrosteel Steels is an attempt to secure future growth. The company’s acquisition of iron ore mines in Jharkhand requires it to do value addition by setting up of domestic industry rather than just transporting the same to another state. Electrosteel Steels manufacturing plant presence along with Vedanta’s iron ore mines in Jharkhand will give Vedanta the complete advantage of backward and forward integration.
2. Bhushan Steel
Tata Steel is declared as the highest evaluated applicant for the acquisition of Bhushan Steel
In the first week of Mar’18, Tata Steel was officially announced as the highest evaluated resolution applicant by CoC (Committee of Creditors) to acquire a controlling stake of Bhushan Steel which was included in the list of accounts that filed for bankruptcy proceedings in June last year.
The four bidders in the race for Bhushan Steel were Tata Steel, Arcelor Mittal, Vedanta and a consortium comprising of Japanese steel major JFE, JSW Steel and Bain-Piramal.
The company’s financial debt stood at INR 56,051.16 crore as on 1 Feb’18, its operational debt was close to INR 1,050 crore and the liquidation value of Bhushan Steel stood at Rs14,541 crore.
Bhushan Steel has auto-grade steel manufacturing plant with a capacity of 5.6 MnT in Ghaziabad, Maharashtra, and Odisha. With the acquisition of BSL, Tata Steel which has its manufacturing units only in Odisha and Jharkhand would be able to strengthen its position in the auto grade steel sector in Northern and Western region markets. Also, Tata Steel has its own iron ore mines, making it low-cost steel producer in India which will provide raw material to Bhushan Steel, thus saving on raw material costs and generating profits from Bhushan’s assets.
3. Bhushan Power and Steel (BPSL)
National Company Law Tribunal (NCLT) has put BPSL insolvency proceedings on hold
BPSL which is also undergoing insolvency proceedings carries a debt of about INR 37,000 crore to a consortium of bankers with PNB being the lead banker.
JSW Steel, Tata Steel, and Vedanta were among the seven companies that expressed interest in BPSL’s insolvency process and the deadline for bid submission was 8 Feb’18. While in the last lag, Tata Steel outbid JSW Steel and emerged as the highest bidder for BPSL, there came a news that UK based metal company Liberty House Group also submitted its bid for BPSL. However, the bid was rejected by the interim resolution professional without opening on the grounds that it was submitted after the Feb 8 deadline.
Subsequently, Liberty House moved to NCLT requesting it to uphold the validity of its bid for BPSL claiming that the bid was valid as it was submitted within the 270-day time frame stipulated by the Insolvency and Bankruptcy Code (IBC).
Therefore in mid-March, the Delhi bench of NCLT announced that the lenders cannot hold any meeting to decide on the resolution plan for BPSL till the court delivers a final verdict in the matter of Liberty House.
BPSL has a 3 MnT steel capacity integrated with coke over, sinter, pellet plant, blast furnace, steel melting shop (SMS), casting unit, rolling mill and captive power plant situated in Odisha. The company ran into trouble after its licenses for iron ore and coal mines were cancelled.
4. Essar Steel
The company is currently undergoing rebidding process
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. Essar Steel has an integrated steelmaking capacity of 10 MnT and is located in Hazira, Gujarat.
According to data published on company’s website, Essar Steel owes INR 49,212 crores to 34 banks, financial institutions, trusts, and other corporate entities, INR 2,581 crore to the creditors, and INR 18 crores to the employees.
After eight months of initiating insolvency proceedings, in Feb’18, the race for buying the bankrupt Essar Steel boiled down to just two companies, Arcelor Mittal (AM) and Numetal. However, the RP (Resolution Professional) of the case, overseeing the auction was advised to reject both the bids owing to their promoters being linked to defaulter companies as section 29A of Insolvency and Bankruptcy Code (IBC) barred wilful defaulters, defaulting promoters, and related persons are from the bidding under the insolvency process.
Subsequently, three bidders below put in their bids to take over bankrupt Essar Steel in the second round of bidding held on 2 Apr’18
1. ArcelorMittal along with Nippon Steel & Sumitomo Metal Corporation
2. Mining giant Vedanta group
3. A consortium of Russia’s VTB Capital-backed NuMetal along with JSW Steel
The second round was open only to firms that had submitted EoIs (Expression of Interest) in the first round, blocking new entrants from submitting resolution plans. Vedanta had submitted EoI earlier while JSW Steel which could not participate in the bidding process on a standalone basis (since it had not submitted an EoI), decided to team up with Numetal to submit a resolution plan.
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