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Ruias want to pay up, bid for Essar Steel

Dev Chatterjee & Ishita Ayan Dutt/Mumbai/Kolkata 05 Dec 17 | 12:16 AM

The Essar Group is planning to pay its dues to lenders so that it can take part in the bidding process for its steel plant in Hazira, Gujarat. Tata Steel, ArcelorMittal and others are reportedly keen to acquire it. 

The group has sought clarification from lenders on the overdue interest so that it can pay it and submit its bid by December-end, said a lender. 

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Essar Steel is among the 12 companies that were sent to the National Company Law Tribunal (NCLT) by the RBI for resolution under the Insolvency and Bankruptcy Code (IBC). Others, too, are in the race. Sanjay Singal, promoter of Bhushan Power & Steel, said, if possible, he would pay the overdue amount and bid for his firm.

Essar Steel has paid about Rs 3,500 crore to banks between April 2016 and June this year. The group reduced its debt by Rs 75,000 crore with the sale of its Gujarat-based oil refinery to Rosneft of Russia. 

Part of the proceeds of the Essar Oil sale and the sale of its business process outsourcing unit, Aegis, were used to retire its loans. “The committee of creditors has taken notice of this," the banker quoted above said. Essar Steel owes close to Rs 44,000 crore to banks. But the overdue interest would be substantially lower.

“According to the clarification issued by the government, any company or promoter which has paid its dues to the banks can participate in the bidding process — provided the banks have not recalled the entire loan," said Alok Dhir, managing partner of Dhir & Dhir Associates. “The committee of creditors will prefer the best offer for them and even if the process of calling expression of interest is over, it can seek the best financial deal for them (lenders)," he added.

A leading Mumbai-based lawyer, asking not to be named, said, “Promoters can bid for the company, provided they make their accounts current. There is some ambiguity though whether or not a company needs to pay the entire loan amount or just the interest or principal overdue. If the entire loan is paid, then the entire insolvency process is over, as there is no liability."

The promoter can arrange for the entire debt by getting a new set of creditors, he added.

A senior public sector bank executive said, “Many promoters have made requests to us to look at their eligibility if the overdue amounts are paid." He added since these were Reserve Bank of India (RBI)-referred cases, clarity from the central bank on whether promoters can bid after clearing overdue amounts will be crucial. 

An Essar Group spokesperson declined to comment. 

Apart from Essar Steel, Bhushan Steel, Bhushan Power and Steel, Monnet Ispat, and Electrosteel Steels are the steel companies that are going through the IBC process. 

The NCLT has appointed insolvency professionals for these companies and has suspended their boards of directors. 

The insolvency resolution professionals would call for financial bids from the interested parties, who would take over part of the stressed company’s loans. The banks, at the same time, are expected to take a haircut of as high as 60 per cent of its loans. The bidder, who will submit an offer to service the maximum portion of the pending loan, will take over the company. 

Essar Steel was put on the IBC list by the RBI after 26 meetings of the joint lenders forum (JLF) failed to take any decision on its debt-resolution proposal. The debt had become a non-performing asset (NPA) in December 2015. 

According to a proposal submitted by Essar Steel, the promoters were to bring in fresh equity of Rs 2,500 crore into the company, along with private equity firm, Farallon Capital. The plan also included banks converting part of their debt into equity. With this plan, the Ruia family’s stake was to fall to 44 per cent. But this resolution plan was stuck with the JLF for various reasons, including banks seeking additional guarantees. 

Sources close to the development said that Bhushan Power and Steel’s overdue amounts would close to Rs 10,000 crore, which would have to be paid upfront. Bhushan Power’s total debt is around Rs 37,248 crore. Singal was one of the qualified bidders for Bhushan Power till the Ordinance, practically barring promoters from bidding, was promulgated. Promoters, however, could bid if they paid the dues with interest before submission of the resolution plan. Before Bhushan Power was taken to the NCLT by lenders, Singal was in discussion with lenders and investors for a restructuring proposal for Bhushan Power. 

Since January this year, banks became cautious over taking a decision on loan restructuring proposals after former IDBI Bank chairman Yogesh Agarwal was arrested for clearing a loan for Kingfisher Airlines in 2010. In June this year, the RBI sent 12 companies to the NCLT among the 500 top NPA accounts with debt of over Rs 5,000 crore.

Lenders said the entire sale process will get delayed by few more months as the bidders want clarity on the income tax liability on the stressed asset, as the haircut taken by the banks and interest foregone by them will be considered as income of the target company and will be taxed accordingly.

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