ArcelorMittal Picked As Winning Bidder For Essar Steel   

Essar Steel’s Committee of Creditors picks ArcelorMittal as H1 or preferred bidder. But price negotiations remain.

Coils of steel stand ahead of the continuous annealing process at a steel packaging factory. Photographer: Krisztian Bocsi/Bloomberg
Coils of steel stand ahead of the continuous annealing process at a steel packaging factory. Photographer: Krisztian Bocsi/Bloomberg

The committee of creditors tasked with the resolution process of Essar Steel Ltd. has picked ArcelorMittal as H1 Resolution Applicant, or preferred bidder, for the insolvent asset. The final bid price will be negotiated over the weeks to come, the Luxembourg-based company said in a statement.

The company will now enter into further final negotiations with the CoC.
ArcelorMittal Statement - Oct. 19, 2018

This comes two weeks after the Supreme Court directed both Numetal Mauritius and ArcelorMittal to pay up past debts to be eligible to bid for insolvent Essar Steel Ltd. Of the two, only one met the Supreme Court directive—ArcelorMittal. Numetal failed to do so within the two-week deadline laid down by the apex court, which expired today.

ArcelorMittal said in an earlier statement on Oct. 17 that it has approved a payment of Rs 7,469 crore (approx. $1 billion) to the financial creditors of Uttam Galva Steels Ltd. and KSS Petron Pvt. Ltd. to clear overdue debts so that the offer it submitted for Essar Steel India on April 2, 2018 is eligible. The Supreme Court had found ArcelorMittal to be promoter of both these non-performing assets and hence eligible to bid for Essar Steel only if their dues were paid.

Numetal, led by Russian financial group VTB, was required to pay Rs 49,000 crore—the amount owed by Essar Steel to its debtors. This was because the apex court, after examining the past and present ownership of Numetal, had concluded that “the looming presence of Shri Rewant Ruia has been found all along, from the date of incorporation of Numetal, till the date of submission of the second resolution plan”.

Rewant Ruia is the son of Ravi Ruia, one of the two brothers who promoted the Essar Group.

A person aware of the matter at Numetal confirmed that no dues had been repaid. The company said it wouldn’t issue a formal statement.

Interestingly, earlier this week VTB Capital approached the Supreme Court to seek permission to bid alone for the asset, according to a report in the Economic Times newspaper. That matter has yet to be heard.

With Numetal out of the race the CoC had to pick between Lakshmi Mittal’s ArcelorMittal and Anil Agarwal’s Vedanta Group.

Essar Steel IBC Case: Important Precedents Laid Down By The Supreme Court

The Bids

As reported earlier by BloombergQuint, the global steel major had bid Rs 42,000 crore, the most among the three players in the second round of bidding. Numetal had bid Rs 37,000 crore and Vedanta had offered Rs 35,000 crore, reported Bloomberg.

Two officials familiar with the process said, on condition of anonymity, that price negotiations will continue with ArcelorMittal before the resolution plan is put to vote by the CoC. It needs 66 percent of votes in favour as per the recently amended Insolvency and Bankruptcy Code, 2016.

According to the Supreme Court order, the Essar Steel CoC now has eight weeks to accept the resolution plan.

Relief For Banks

Essar Steel is among the first 12 non-performing assets that RBI had directed banks to take to insolvency resolution in June 2017. The Ruia family-promoted company owes Rs 49,394 crore to its financial creditors and approximately Rs 5,000 crore to operational creditors.

The company’s lenders, led by State Bank of India, had filed an insolvency petition in July 2017 and the National Company Law Tribunal admitted the case in August that year.

The lenders had been trying to find a resolution to the company’s debt for two years prior to the insolvency filing. In November 2015, the banks appointed SBI Capital Markets and ICICI Securities Ltd. to find buyers for the steelmaker, but were unsuccessful. They then tried various restructuring schemes but the results were not encouraging.

The insolvency process has also witnessed several twists and turns, mostly to do with bidder eligibility and litigation surrounding that. An amendment to the Insolvency and Bankruptcy Code, 2016 disallowed a promoter of a non-performing asset from participating in the solvency resolution process of the asset unless it repaid its outstanding loans . This scuppered the Ruia family’s plan to retain the steel company. And though they tried to do so via an interest in Numetal, that was struck down by the courts.

Located in Hazira, Gujarat the fully integrated flat carbon steel manufacturer has a current capacity of 10 million tonnes per annum. If it succeeds this will be ArcelorMittal’s second such attempt to enter India. It’s first effort, via an investment in Uttam Galva Steels Ltd., didn’t yield much and the company eventually ran into financial trouble. Last year ArcelorMittal was forced to exit the business to be eligible to bid for Essar Steel.

Essar Steel marks a much bigger India play for Lakshmi Mittal. And a substantial debt recovery for the many banks and creditors involved.