Essar Steel: NCLT Rejects Promoter Ruias’ Settlement Bid

NCLT rejects settlement offer by Essar Steel’s promoter.

Prashant Ruia, Chairman of Essar Group, listens at a forum, in Saint Petersburg, Russia (Photographer: Andrey Rudakov/Bloomberg)
Prashant Ruia, Chairman of Essar Group, listens at a forum, in Saint Petersburg, Russia (Photographer: Andrey Rudakov/Bloomberg)

The Ahmedabad bench of the National Company Law Tribunal has rejected the settlement offer by Essar Steel Ltd.’s promoters, the Ruia family. The offer was made on the day the Committee of Creditors approved ArcelorMittal’s resolution plan for the insolvent Essar Steel.

The tribunal has pointed out that an application for withdrawal of insolvency proceedings, under section 12A of the Insolvency and Bankruptcy Code, 2016, can only be considered if it's filed by the applicant who initiated insolvency in the first place. In the Essar Steel insolvency matter, lenders State Bank of India and Standard Chartered Bank had filed insolvency cases.

According to Essar Steel’s resolution professional Satish Kumar Gupta, of Alvarez & Marsal, the tribunal has in effect upheld the decision taken by the CoC in October 2018 to pick ArcelorMittal as the winning bidder for the western India-based steel company.

Despite the NCLT decision, the Ruias maintain their offer is superior to that made by ArcelorMittal. “We continue to believe that our offer of Rs 54,389 crore is the most compelling proposal available to Essar Steel creditors,” a statement by the Essar Group spokesperson said.

It (Ruia offer) seeks to repay all classes of creditors and fulfills the IBC’s overriding objective of value maximisation that has been established time and again by courts at all levels. We submitted the proposal under the recently introduced Section 12A of the IBC and the recent judgement of the Supreme Court has established that the section’s provisions are applicable retrospectively. We are awaiting a copy of the full NCLT order, and will take a call on next steps after we have thoroughly gone through the contents.
Essar Group Spokesperson

According to Nilang Desai, partner, AZB Partners, it is unlikely that Essar Steel promoters would try to convince creditors to file for an exit from the insolvency proceedings at this stage. “But anything can happen under insolvency. We would have to wait and see,” said Desai.

“We will need to see the actual order to see the grounds cited to make this judgment. But obviously the ability to appeal to a higher court and then Supreme Court remains open,” Desai added.

Mohit Saraf, senior partner, L&L Partners (formerly Luthra & Luthra), however disagreed and said that the recent order by the Supreme Court upholding the validity of the IBC and all its segments under the constitution would be enough to stop any discussion around promoter’s rights in the matter. L&L Partners advised ArcelorMittal during the bidding process for Essar Steel.

A statement by Rajnish Kumar, chairman of State Bank of India, the lead lender to Essar Steel, also alluded to the recent Supreme Court judgment that upheld the validity of the IBC and clarified the provision for withdrawal of insolvency proceedings.

The Supreme Court order last week on IBC was a speaking order. That has put to rest all debate around promoters finding a way to get back into the company. We will be waiting for the adjudicating authority to decide on the resolution plan submitted by the committee of creditors. As far as the sale of Essar Steel loan is concerned, we’ve already deferred it to Feb. 11. Hopefully, a decision in this matter is reached before that. We will wait and see.
Rajnish Kumar, Chairman, State Bank of India
IBC: What The Supreme Court Ruling Means For The Essar Steel Case

Meanwhile, starting Jan. 30 the NCLT bench will now hear the resolution plan submitted by ArcelorMittal.

The Luxembourg-based global steel major welcomed the NCLT decision saying it “protects the integrity of the IBC and ensures its legitimacy as a rules based law”.

“This is a positive development for both Essar Steel India and the country more broadly. We hope now for a swift resolution to this case,” said ArcelorMittal’s spokesperson.

The potential entry of ArcelorMittal in India’s steel sector is a landmark, said Amit Dixit, analyst at Edelweiss Research.

We consider it a landmark in Indian ferrous space as: 1) the company will be a significant player in the ferrous space acquiring a running capacity of 6.5-7 mtpa; 2) In the medium term, we see imminent consolidation in domestic steel sector with 3 strong players operating capacity of 20 mtpa plus each and; 3) ArcelorMittal’s strong product line and cutting edge technology will spur similar development in India by the incumbents, a welcome relief from the race for capacity aggrandizement.
Amit Dixit, Analyst, Edelweiss Research.

Watch Nilang Desai and Mohit Saraf analyse the NCLT decision.

Twists In The Essar Steel Tale

The Ruia-family promoted Essar Steel ran into debt trouble a few years ago and was among the first 12 large cases admitted to insolvency proceedings in 2017, on directions of the Reserve Bank of India.

Since then the insolvency resolution process has been beset with litigation, especially when the Ruias attempted a backdoor entry into the resolution process via equity interest in Numetal - a consortium led by Russian financier VTB. The IBC disallows a promoter of a corporate defaulter from participating in the insolvency process. Among others vying for Essar Steel were the world’s largest steel company ArcelorMittal, Anil Agarwal’s Vedanta Group and attempts at a late entry were made by Sajjan Jindal-led JSW Steel Ltd.

The race narrowed to Numetal and ArcelorMittal but a Supreme Court order placed stipulations on each for their bids to be considered valid. ArcelorMittal paid Rs 7,469 crore dues pending towards another non-performing asset - Uttam Galva Steels for its bid to be considered eligible. Numetal failed to cure its ineligibility and repay Ruia related debt.

In October, ArcelorMittal’s Rs 42,000-crore bid received approval from the CoC but within hours the Ruia family added a twist by offering to to clear all pending dues worth over Rs 54,000 crore unconditionally.

Hence the Ahmedabad NCLT was tasked with both, the job of approving the ArcelorMittal resolution plan a as well as deciding on the Ruia settlement offer. A host of other cases have also been filed by operational creditors objecting to the ArcelorMittal bid.

The matter dragged one for three months, till earlier in January 2019 the appellate tribunal - NCLAT - asked the NCLT to expedite the process.

The delay prompted lead lender SBI to put on sale its total loans to Essar Steel Ltd. worth Rs 15,431 crore, the deadline for which was extended to Feb. 11.

Last week Sajjan Jindal, founder of JSW Steel told BloombergQuint he was in favour of the asset returning to the Ruias. He also disclosed that his company JSW Steel was looking to partner the Ruias to run and expand Essar Steel. In response to Jindal’s comments Aditya Mittal, president of ArcelorMittal, said to BloombergQuint that these tactics “were to delay, to frustrate and prevent the right resolution for the company”.

“India has to be rule based; we must rely on the basic process of law.
Aditya Mittal, President, ArcelorMittal