Ruias offer to pay ₹54,389 crore to lenders to withdraw Essar Steel from insolvency

Essar may look for strategic investor; ArcelorMittal says new offer not valid

October 25, 2018 07:08 pm | Updated 10:41 pm IST - New Delhi

The logo of Essar group is seen at its headquarters in Mumbai, India August 21, 2017.

The logo of Essar group is seen at its headquarters in Mumbai, India August 21, 2017.

In a setback to ArcelorMittal, the promoters of Essar Steel on Thursday submitted a proposal to the Committee of Creditors (CoC) for full settlement of the entire admitted claims of the financial creditors, operational creditors, and workmen and employees of Essar Steel India Ltd (ESIL), aggregating ₹54,389 crore.

The offer includes an upfront cash payment of ₹47,507 crore to all creditors, including ₹45,559 crore to the senior secured financial creditors, i.e. 100% recovery, thereby offering 8.7% premium to ArcelorMittal’s upfront offer of ₹41,909.

’CoC is empowered’

“The CoC is empowered to consider and approve this settlement plan with the requisite voting share, on the basis of which the corporate insolvency resolution process against ESIL may be withdrawn,” said an Essar statement. It added that while the resolution plan currently under the CoC’s consideration takes care of only secured creditors (i.e. the banks), the new offer from ESIL promoters will lead to not only maximum recovery for lenders, but also for all other classes of creditors.

This would take the firm out of the insolvency process under Section 12A of the IBC, which was introduced in June 2018 as an amendment.

The offer comes at a time when Essar Steel’s lenders were about to vote on ArcelorMittal’s offer of ₹41,909 crore. If the CoC were to accept the resolution plan currently under consideration, it will have to settle for a haircut. Moreover, the same offer does not provide for meaningful payment to operational and other unsecured creditors, said ESIL promoters in a statement.

“Even after the onset of the insolvency resolution process, the shareholders of Essar Steel had made offers to settle the debt..., but the lenders did not accept those offers.” ArcelorMittal said IBC’s section 12A does not apply to the resolution process of Essar Steel.

In response to Essar’s offer, ArcelorMittal said in a statement, “Section 12A states that any application to withdraw must be submitted prior to issuance of the invitation for expressions of interest [EoIs] and must be accompanied by a bank guarantee for the specified amounts. The [EoIs] for Essar Steel were issued in October 2017. ArcelorMittal has complied with the Supreme Court order; we have settled the dues of Uttam Galva and KSS Petron; we have bank guarantees for the payment for Essar Steel. We expect the process to continue as per the terms of the IBC.”

IBC amendment

Section 12A of the IBC provides for withdrawal of on-going CIRP applications with 90% approval of CoC after amendments were made to the code. This was done to provide a second chance to corporate debtors to make good on defaults, even after admission by NCLT. Lenders may consider taking this route in cases where they believe that recovery / value can be maximised through a route other than IBC.

Investment adviser S.P. Tulsian sees it as IBC’s success. “This will be a lesson for wilful defaulters. Old practice of... seeking fat waivers from PSU banks is now seen [as] a practice... of the past,” he said.

Over the past year, the Essar Group has repaid debt of ₹80,000 crore. The latest proposal brings the total amount to 75% of the group’s debt. “The company has got the backing of Russia’s VTB Group and others for funding requirements,” a source close to the development told The Hindu . An Essar Steel spokesperson declined comment on funding plans.

A source close to ArcelorMittal said, “This desperate attempt [by the promoters] only serves to... demonstrate they are wilful defaulters as, presumably, if they can pay now, they could have paid before. [They believed] they could get the company back at a significant haircut. If the law is followed, this offer should be given short shrift.”

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