SBI Puts Its Entire Essar Steel Loan Exposure On Sale

Twist in the Essar Steel case as SBI puts loans on sale.

The State Bank of India Ltd. (SBI) logo is seen at a branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
The State Bank of India Ltd. (SBI) logo is seen at a branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

State Bank of India has put on sale its total loans to Essar Steel Ltd. worth Rs 15,431 crore, as per information on its auction website. The sale is open for asset reconstruction companies, non-banking finance companies, banks and financial institutions.

The minimum reserve price for the loans has been set at Rs 9,587 crore and the bank has disclosed that as per the ArcelorMittal resolution plan, approved by Essar Steel’s committee of creditors, the minimum recovery amount on these loans is Rs 11,313 crore.

The reserve price has been computed using an 18 percent discount on the minimum recovery amount from the ArcelorMittal plan and pricing in a one-year period for the deal to close, according to the notification put up by India’s largest lender. The bank has also put in a claw back option, where if the resolution happens in less than a year, the discount could be reduced and the entity buying these loans would have to pay more to SBI.

SBI has not discussed this move with any of the other banks in the case, a banker to Essar Steel told BloombergQuint. It is possible that SBI wanted to close this case at the earliest and report higher recoveries in the January-March quarter, this lender said on conditions of anonymity. The Essar Steel insolvency case has seen considerable delays, even after the committee of creditors have approved the ArcelorMittal bid.

SBI has yet to respond to BloombergQuint’s query.

The list of financial creditors put up by Essar Steel’s resolution professional in January 2018 shows that SBI is the largest lender to the company, with claims worth Rs 13,310 crore to the account. Edelweiss Asset Reconstruction Company Ltd. is the second largest lender with claims worth Rs 5,352 crore admitted.

The decision to sell these loans comes as somewhat of a surprise as Essar Steel, after a prolonged insolvency process, reached resolution in October last year and the approved plan, submitted by top bidder ArcelorMittal, was awaiting a final nod from the NCLT. But there have been delays at the NCLT in granting that final approval, prompted by a last minute attempt by Essar Steel’s erstwhile promoters, the Ruia family, to nullify the insolvency process. Several operational creditors have also filed cases seeking relief.

This sale of loans will not impact the Essar Steel resolution process, said a senior lawyer on condition of anonymity. If the NCLT approves the ArcelorMittal resolution plan the payment is already consented between the lenders and the resolution applicant and that does not change upon the assignment or securitisation of loans as that arrangement and accrued right is available to the buyer, said the lawyer. The buyer shifts into the role of the selling lender, he added.

And if the NCLT orders the CoC to consider the Ruia offer then the assignee or the beneficiary of the securitisation will decide on the basis of his free will, the lawyer said.