India's insolvency and bankruptcy agency set to hand over management of Essar Steel

The $6bn takeover is billed as the first high profile case of management change under the newly framed Insolvency & Bankruptcy Code
India's insolvency and bankruptcy agency set to hand over management of Essar Steel
In another first, the $6 billion takeover of Essar Steel by ArcelorMittal Netherlands BV will lead to the creditors recovering 85 percent of their loans to Hazira, the Gujarat-based steel major.
By James Mathew
Tue 12 Mar 2019 11:57 AM

India’s insolvency and bankruptcy agency is set to hand over management of the 10-million tonne Essar Steel to the Luxembourg-based AreclorMittal in the coming days, in what is being billed as the first high profile case of management change under the newly framed Insolvency & Bankruptcy Code (IBC) in India.

In another first, the $6 billion takeover of Essar Steel by ArcelorMittal Netherlands BV will lead to the creditors recovering 85 percent of their loans to Hazira, the Gujarat-based steel major.

“We are waiting for the written order from the Ahmedabad bench of National Company Law Tribunal (NCLT) which has approved the resolution plan of ArcelorMittal for Essar Steel,” a top official of India’s ministry of corporate affairs, the nodal ministry for IBC, told Arabian Business.

“We expect the written order to come in a day or two, after which the order will be issued for the management change in Essar Steel,” the official added.

Essar Steel was among the first list of 12 Indian companies referred for management change under IBC in mid-2017, after the loans to these companies became non-performing assets.

Even as the corporate affairs ministry is awaiting the written order from the NCLT bench to clear the order on management change in Essar Steel, a fresh petition by was filed before the Ahmedabad bench of the tribunal on Monday by Essar Steel MD Prashant Ruia and Essar Group executives seeking to set aside the ArcellorMittal’s winning bid.

The last bid effort by the Ruias to stall the management change in the company came after the Supreme Court rejected a petition by the operational creditors to Essar Steel making certain objections to the conditions of the ArcelorMittal takeover.

The government official, however, said the ministry will clear the management change in Essar Steel once the written order from NCLT is received and the “legal contentions [against the takeover] can continue” even after it.

“We continue to believe that our settlement proposal of $7.81 billion (Rs 54,380 crore) is the most compelling one available to Essar Steel creditors and fulfils the IBC’s declared overriding objective of value maximisation, which has been established time and again by courts at all levels,” the Essar group spokesperson told Arabian Business.

“We are awaiting a copy of the NCLT order, and will take a call on next steps after examining the same,” the Essar spokesperson said, reacting to the corporate affairs ministry's move.

ArcelorMittal executives could not be contacted for their comments. Arabian Business has contacted Brunswick, the agency which handles AreclorMittals’ communications.

Once the order for ArcelorMittal to take over Essar Steel is passed, it will draw an end to a long and messy legal battle between two powerful business families of India – the Ruias, who are the current promoters of Essar Steel, and L N Mittal, the India-born, UK-settled steel baron and promoter of ArcelorMittal.

The Essar Steel insolvency saga has seen many turns and twists during its 550-day legal battle in insolvency tribunal, appellate tribunal, High Court and Supreme Court. This included the Ruias filing a counter petition to withdraw the insolvency case against their company by proposing a $7.81 billion offer to settle the entire loans to both the company’s financial and operational creditors.

The statutory requirement under IBC code is to resolve insolvency cases within 270 days.

The Ruia family-backed Essar Steel Asia Holdings Ltd (ESAHL) holds 72% of shares in Essar Steel, which runs a 10-million-tonne steel mill at Hazira in Gujarat, involving ore beneficiation, pellet making, iron making, steel making, and downstream facilities.

The State Bank of India-led creditors to Essar Steel on October 25 last year voted in favour of handing over Essar Steel to ArcelorMittal, after the LN Mittal-promoted company cleared pending dues of Uttam Galva and KSS Petron, two companies in which the Mittals held stakes before.

The creditors had to take a 37 percent haircut in Bhushan Steel, which was the first case of management change under the insolvency process when Tata Steel took over it in May last year.

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