Essar Steel insolvency saga rolls on

The saga of the bankrupt Essar Steel’s sale added a fresh chapter on Wednesday as the Committee of Creditors rejected the bids by ArcelorMittal and Numetal Ltd. The committee also called for a second round of bids which will have to be submitted by April 2. The companies that had picked up expressions of interest in the earlier round in February will be allowed to submit bids this time around as well.

The State Bank of India-led committee found that ArcelorMittal and Numetal were both ineligible under Section 29 A of the Insolvency and Bankruptcy Code (IBC). The section bars promoters or companies with investments in firms which have become insolvent to bid for companies and assets undergoing an insolvency resolution. Further, an additional condition has been put in the second round of bidding which bars the winner from selling stake to any company or individual who would have been ineligible for bidding under Section 29 A of the IBC, said two people in the know of the development.

One of the people said that while ArcelorMittal had sold its stake in Uttam Galva Steels, another bankrupt steelmaker, it is not yet reflected in the records with the Bombay Stock Exchange and the Securities and Exchange Board of India. “The records of SEBI and BSE still classify ArcelorMittal as a promoter of Uttam Galva Steels,” the person said.

Numetal Ltd, is a consortium led by VTB Capital of Russia, TyazhPromExprots (TPE) of Russia, Indo International and Aurora Enterprises, a trust where Rewant Ruia, son of Essar Group founder Ravi Ruia, is a beneficiary. The company was also found ineligible under Section 29 A of the IBC.

The rejection of both the bids means that lenders will not be able to recoup the funds it lent to Essar Steel in the fourth quarter of fiscal 2017-18. Tata Steel, Vedanta, Steel Authority of India Ltd and Nippon Steel, who had picked up the expression of interest earlier did not end up bidding for the distressed steelmaker. The companies would be eligible to bid in the second round. Tata Steel is already trying to buy the assets of Bhushan Steel and Bhushan Power & Steel which are undergoing an insolvency resolution process and according to an industry insider, are unlikely to be interested in Essar Steel anymore. Nippon Steel in February had formed a joint venture with ArcelorMittal in order to bid for Essar Steel.

However, there is still hope for both ArcelorMittal and Numetal, said another person in the know of the developments. “If the two companies can rectify the grounds on which their bids were rendered ineligible and they do so before April 2, they can and most probably will bid again,” the person said.

It remains to be seen whether SEBI’s and BSE’s records are updated at the end of the quarter with regard to the shareholding in Uttam Galva Steels.

Numetal has previously said that the other shareholders in the company are prepared to buy out Rewant Ruia’s share in the firm.

Meanwhile, pre-empting the rejection of its bid, Numetal approached the National Company Law Tribunal in Ahmedabad on March 20, a day before the committee of creditors met, to reinforce its eligibility to bid for Essar Steel.

In a statement on Wednesday, Numetal said, “Aurora is a minority shareholder with no right to directorship and management of Numetal. Numetal apprehends that full facts submitted by the company for determination of its eligibility to submit a resolution plan have not been appropriately assessed.”

The NCLT did not halt the insolvency resolution process of Essar Steel but it did observe that “any decision taken or resolution passed by the Committee of Creditors would be subject to the outcome of the Application (Numetal’s application to the NCLT)”. The next date of hearing is April 4.

According to a Mumbai-based lawyer who did not wish to be named, the application to the NCLT provides the Ruia family with a window of hope that even if Numetal buys out Rewant’s stake before April 2, a favourable decision can help them come back into Essar Steel if Numetal successfully wins the bidding.