NCLAT gives nod to Numetal’s eligibility for Essar steel; ArcelorMittal to clear dues by Sept 11 to stay in the race

10-Sept-2018

The long-drawn battle for Essar Steel has just gotten longer. The National Company Law Appellate Tribunal today ruled that Russia’s VTB Capital-backed NuMetal and Lakshmi Mittal-led ArcelorMittal are both eligible to bid for the beleaguered company.

However, while Numetal’s second bid will be eligible, the same by ArcelorMittal will qualify only if it clears all outstanding dues of the defaulting firms it was previously associated with. The two-member bench of NCLAT headed by Chairman Justice SJ Mukhopadhaya further set a deadline of September 11 for ArcelorMittal to clear the Rs 7,000 crore dues of Uttam Galva Steel and KSS Petron in other to remain in the race.

After six months of painstaking insolvency proceedings and due diligences, these two players had been the only bidders for Essar Steel back in February. The company, incidentally, was among the initial 12 companies identified by the RBI for insolvency proceedings. According to The Economic Times, ArcelorMittal has offered Rs 30,000 crore in the first round while NuMetal had offered Rs 18,000 crore.

But the Committee of Creditors (CoC) had rejected both bids on the grounds that they were ineligible under the provisions of Section 29A of the amended IBC and called for a second round of bidding.

Numetal’s first bid was rejected due to the 25% share owned by Rewant Ruia, the son of Essar Steel founder Ravi Ruia, since he was deemed a related party. ArcelorMittal’s ineligibility stemmed from the fact that it had sold its 29% stake in Uttam Galva, which was also facing insolvency proceedings, just weeks before submitting its bid for Essar.

Though both companies challenged the lenders’ decision at the NCLT soon after they were disqualified, they also submitted fresh bids. Though the tribunal did not give any relief to the bidders, it asked the CoC to take another look at the original bids before disqualifying them while giving ArcelorMittal and Numetal 30 days to rectify grounds of rejection.

Though they challenged the NCLT decision – as well as each other’s eligibility – in NCLAT, both parties took the time to work their way out of the roadblocks. ArcelorMittal sought out and successfully bagged classification as a non-promoter in Uttam Galva. Furthermore, in May the steelmaker placed Rs 7,000 crore in an escrow account of State Bank of India (SBI) to clear the debt of its associated companies, with the condition that lenders disqualify Numetal’s bid. Meanwhile, at Numetal, JSW Steel bought out the contentious 25 per cent stake held by Ruia.

With the NCLAT’s latest ruling, the CoC will now open the second round of bids, which also saw participation from Anil Agarwal-led Vedanta Group.

Significantly, the bench also granted more time for Essar’s resolution process, deducting the litigation period of April 26 to September 7 from the 270-day deadline prescribed under the IBC. The NCLAT also said that the lenders are allowed to further negotiate bids for Essar and decide expeditiously.

Despite the fact that Essar Steel boasts the third biggest debt pile (around Rs 49,000 crore) among RBI’s Dirty Dozen, it is a big prize to land. Steel tycoon Mittal has wanted to build a steel plant in the country since 2005 but has been repeatedly thwarted by regulatory hassles. Essar’s 10 million tonne steel plant in Hazira, Gujarat – India’s largest single-location flat steel plant – fits neatly into the company’s plan to create a sizable footprint in the Indian steel market.

Numetal, likewise, stands to gain much from the acquisition since India is expected to overtake Japan to become the world’s second largest steel producer soon. In fact, the government expects domestic production in India to double by 2031, with growth rate expected to go above 10% in FY18.

Source: BUSINESS TODAY