Can Ruia's Disrupt Arcelor Mittal's Indian Entry?

The case of Essar Steel insolvency continues to move ahead with twists and tunes, the latest being offer by Essar Steel promoters to pay up INR 54,389 crore to retain the control of the company. That this offer was made when Committee of Creditors had voted in favor of accepting the offer by ArcelorMittal makes it more intriguing. Why, on earth, were they waiting for this day? However, bigger question now is, even though the CoC has chosen ArcelorMittal, can the Supreme Court, take a different view?

The Case Remains Still Open

The insolvency process of Essar Steel, which began in June last year, certainly makes for an interesting board-room battle, more so, because of the presence of high profile international players. It is among the first 12 companies which were referred to NCLT in June'17. These cases are unique since the insolvency was not initiated by any of the lender but directed by RBI as over 60% of the loan outstanding had become NPA for these companies. Loan outstanding in this case is estimated at about Rs 50,000 crore and is among the few cases where banks expect to recover full principal amount.

The case of Essar Steel is even more important since its assets are relatively new and the industry is doing reasonably well. Further, since both the bidders were international players, the winner would gain easy access to a not-so-easy market. This is even more crucial for ArcelorMittal as it had been trying to enter the market since 2005. While the battle should have been around the money both players put in, an amendment to the IBC made it a multi pronged battle.

The bids for takeover of the company were invited in Oct'17 after initiation of proceedings in Aug'17. ArcelorMittal and Numetal emerged at the most suited parties at this time. While things looked smooth at that time, a crucial amendment to IBC in Nov'17 upset all the arithmetic. The amendment barred promoters of any company facing insolvency from bidding for any other insolvent company. This put a question mark on the eligibility of both the bidders. ArcelorMittal was a co-promoter of Uttam Galva and KSS Petron both of them were defaulting companies. Similarly, one of the family members of Ruia family had a 25% stake in Numetal.

Can Essar go to Supreme Court?

In a swift move, ArcelorMittal sold off its holding in Uttam Galva just before the last date of bid submission on 12th Feb'18. The sale at Rs 24 per share against purchase price of Rs 120 nine years back indicates how aggressively it was fighting this battle. However, adding twist to the tale, even though they ceased to be a promoter, its name was NOT struck off from Stock exchange record as a promoter on the day they submitted their bid..!

The onus fell on the committee of creditors (CoC) which declared both the bids ineligible. The increasing interest among the bidders, probably, gave them a reason to call for fresh bid hoping to get even better price. Both the parties again made their bids meeting all the eligibility criteria. Before the submission, Ruia's stake in Numetal was sold off to JSW Steel. Making the battle more interesting, Vedanta also entered the fray. While the initial bids were estimated at Rs 32,000 crore and Rs 18,000 crore by ArcelorMittal and Numetal respectively, the revised bids are estimated at Rs 42,000 and Rs 37,000 crore. Clearly, ArcelorMittal is ready to put in lot more money for the company.

Other than the battle on the financial front, companies also filed cases challenging their disqualification and also challenging other company's eligibility..! ArcelorMittal, to ward-off the baggage of being an ex-promoter of Uttam Galva, also deposited an amount of Rs 7,000 crore in an escrow account with SBI. This was to be paid to settle the dues of Uttam Galva only if its bid for Essar Steel was accepted.

While the case looked tilted towards ArcelorMittal, another clause in IBC tilted the balance in Numetal's favor. The clause allows bidders a grace period of 30 days to rectify any ground of ineligibility if their bid meets all other criteria. Numetal's second bid leveraged this clause submitted towards the end of March'18, after sale of Ruia's share to JSW Steel.

Amidst all the confusion and complication, the case was also being heard by Honorable Supreme Court. The court's decision on 3rd Oct'18 gave both the bidder to resubmit their bids AFTER clearing the dues of all connected defaulting entities. The race narrowed to ArcelorMittal when it did the same within the period whereas Numetal failed to do so.

As the saying goes, "it is not over, until it is over", Ruias have come back from behind again! While the offer doesn't seem to cut much ice with any of the creditors, the matter is certain to go to the Supreme Court again. The decision of the Court would be keenly awaited.

Disclaimer: The opinions expressed here are those of the author, an independent sector analyst