On February 12, Bank of America Merrill Lynch was the only bidder for Essar Steel India Limited’s (ESIL’s) multi-crore debt, lent mostly by State Bank of India (SBI).
How did Essar get here
ESIL is on RBI’s “Dirty Dozen” list comprising the top 12 companies that went bankrupt and were qualified for immediate resolution. However, the Financial Express reports, “Its resolution process has been anything but immediate.”
SBI is ESIL’s most generous lender as it provided the company with capital and different kinds of loans worth Rs 15,431 crore. On January 17, SBI decided to put all these loans up for sale and surprised many because the National Company Law Tribunal had already approved ArcelorMittal’s bid of Rs 42,000 crore for ESIL.
More trouble ahead
But this approval spurred even more turbulence in the resolution process. Another bidder for ESIL, Numetal, asked the National Company Law Appellate Tribunal to challenge ArcelorMittal to pay its outstanding dues from its previous takeovers of companies, namely Uttam Galva and KSS Petron.
The Supreme Court said ArcelorMittal was only eligible to bid for ESIL once it cleared those dues, and the company agreed to pay Rs 7,000 crore towards that. Using this confusion and delay to its advantage, the Ruia family offered to pay back creditors and investors in a last-ditch effort to retain its assets.
“We believe our proposal will provide 100% recovery to secured creditors and lenders,” Director of ESIL Prashant Ruia said in reference to ArcelorMittal’s bid. “This [the Ruia plan] is well in excess of that offered in the proposal under consideration and is in line with value maximisation, which is the underlying principle of the IBC [Insolvency and Bankruptcy Board of India] process.”
Impact on Indians
Bloomberg Quint reports that the resolution process had progressed too much to turn away ArcelorMittal, which had already spent thousands of crores. In line with this analysis, the SC on Monday, February 11, rejected Ruia’s proposal and allowed ArcelorMittal to take over ESIL.
As SBI has not yet confirmed Bank of America’s bid, the public is unclear if SBI will go through with the sale or not.
This resolution process is now two years in the making, and seems to only be trudging along; nonetheless, it displays a coordinated effort to repay creditors and investors and ensure that no one feels a severe financial pinch.
Rhea Arora is a staff writer at Qrius.