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. 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.
The two bidders in Essar acquisition race
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.
While Arcelor Mittal’s owner Mr. Lakshmi Mittal is known for building his steel empire by buying bankrupt companies across the globe, 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 are few legal loopholes in case of both the bidders and the market is puzzled that will anyone of the two bidders may qualify for the acquisition of Essar Steel or both the companies may be disqualified.
The much talked about legal loopholes in case of both the bidders
According to market reports, it is being said that Numetal may disqualify from the bidding race as Rewant Ruia- the younger son of Ravi Ruia (Co-founder of Essar Steel) has a stake in Numetal and according to the amendment under section 29A of Insolvency and Bankruptcy Code (IBC) that was introduced in Jan’18; wilful defaulters, defaulting promoters, and related persons are barred from bidding under the insolvency process.
However, the catch here is Mr. Rewant Ruia is nowhere directly or indirectly involved in Essar Steel, neither before nor during the company’s bankruptcy proceedings. This fact subsequently negates the speculation that Numetal will disqualify from the Essar Steel’s bidding race.
Also, as per media reports, Numetal has distanced itself from Rewant Ruia by sharing a list of the other investors in the company and has also sent out a statement in media about the confirmation and validity of their bid for Essar Steel.
If we look at another bidder Arcelor Mittal, the company has a stake in already NPA (non-performing asset) declared company, Uttam Galva Steels in India. While Arcelor Mittal’s owner Mr. L N Mittal has a personal holding in KazStroyService (KSS) in Kazakhstan which has been declared NPA in 2015.
Now as per section 29A of IBC, in order to qualify as a bidder for an already distressed company, the contender is required to clear off the loans of the NPAs in which it has its stake as there is no other way out.
In February 2018, in an attempt to put to rest questions on his eligibility to bid for stressed assets of Essar Steel, Arcelor Mittal sold its 29% stake in Uttam Galva Steels to its co-promoter in the company while Mr. Mittal also sold its 33% personal holding in KSS in an effort avoid any further strife.
However, the Arcelor Mittal’s exit from Uttam Galva is still suspicious as the company had sold its stake at one-quarter of actual share price and also this selling off of Arcelor Mittal’s stake in Uttam Galva is not approved by company’s shareholders and SEBI (Securities Exchange Board of India).
With these loopholes in Arcelor Mittal’s bid for Essar Steel, it is to been seen whether AM will qualify for ESIL’s acquisition bid.
The decision of who will emerge as bidder for acquisition of Essar Steel is likely to be announced in this week from Committee of Creditors (CoC).
What does Arcelor Mittal joining hands with Nippon Steel to acquire Essar Steel means?
On 2 Mar’18 Arcelor Mittal announced its union with Japan’s Nippon Steel & Sumitomo Metal Corporation (NSSMC) to jointly bid for Essar Steel.
Arcelor Mittal had been waiting to enter Indian steel market since long in a meaningful manner as its India exposure was limited with a minority stake in India based Uttam Galva which has also been declared as a non-performing asset last year.
On the other hand, NSSMC had been trying to gain a foothold in Indian market by steadily expanding local production in India and targeting sectors that were beneficial to NSSMC’s superior technology. But at the same time, it was also looking out for opportunities to engage in steel production to capture the increasing domestic steel demand in India amid its growing infrastructure.
Thus, both the companies AM and NSSMC came together to jointly bid for Essar Steel. However, the decision of both the companies to jointly bid for Essar Steel is still pending with lenders and NCLT (National Company Law Tribunal).
Essar Steel has an integrated steel plant with a capacity of 10 MnT in Gujarat. While the company manufactures flat steel products, plates, and pipes that were sold through its own domestic channels, in terms of raw material it also owns an iron ore mine in the eastern part of India.
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