Vedanta's Bid to Takeover Electrosteel Steels Finally Approved by NCLT

The bankruptcy case of Electrosteel Steels which was among the first 12 companies that RBI identified in June 2017 for insolvency resolution has been resolved by NCLT (National Company Law Tribunal) today.

NCLT has approved the resolution plan submitted by Vedanta Group, which has made the highest bid of INR 4,500 crore for Electrosteel Steels in the last week of Mar'18. The company owes lenders more than INR 13,000 crore with the highest amount of INR 4,957 crore being due to SBI (State Bank of India) followed by PNB (Punjab National Bank) at INR 874 crore. The amount due to company's operational creditors stood at around INR 191.6 crore. According to the market reports, company's lenders have taken 55% haircut on the outstanding debt which is the difference between the loan amount and the actual value of the asset used as a collateral.

While Tata Steel, Dalmia group, Vedanta, and Edelweiss were the four groups who have submitted the binding bids to buy Electrosteel Steels, Tata Steel and Vedanta emerged as the top two contenders for the same with highest bidding amounts of INR 3,500 crore and INR 4,500 crore respectively.

How did Electrosteel Steels land into trouble?

The company which was founded 11 years back was promoted by Electrosteel Castings, which had secured Parbatpur coal mines with reserves of 231 MnT and also had an iron ore mine and a non-coking coal mine in Jharkhand. Electrosteel Steels has a planned steelmaking capacity of 2.51 MnT and a commissioned capacity of 1.5 MnT in Bokaro district of Jharkhand.

The company was to source iron ore and coking coal from Electrosteel Castings for a period of 20 years. But the coal blocks of Electrosteel Castings were de-allocated in 2014, forcing Electrosteel Steels to purchase high priced raw materials from the market. This increased input cost was accompanied with a crash in steel prices, heavily burdening the company's finances in return.

Why is Vedanta interested in Electrosteel Steels?

The Indian mining tycoon Anil Agarwal's Vedanta Group interest in Electrosteel Steels is an attempt to secure future growth. The company's acquisition of iron ore mines in Jharkhand requires it to do value addition by setting up of domestic industry rather than just transporting the same to another state. Electrosteel Steels manufacturing plant's presence in Jharkhand along with Vedanta's iron ore mines there will give Vedanta the complete advantage of backward and forward integration and will prove to be more profitable venture.

Which other companies are in the final stage of resolution?

According to the market reports, ten months after they were first shortlisted by the RBI for immediate referral for bankruptcy proceedings, five of the 12 large corporate accounts including Electrosteel Steels are now in the final stages of resolution.

While the plan for Electrosteel Steels is approved by NCLT, in case of steel majors Bhushan Steel Ltd and Monnet Ispat & Energy Ltd., the committee of creditors has approved resolution plans and these cases are now at the NCLT, waiting for a final nod before the resolution plans can be implemented