IBC: Ruias Offer To Repay Over Rs 54,000 Crore To Withdraw Essar Steel From Insolvency

Ruia family makes last ditch effort to retain control of flagship asset - Essar Steel.

Prashant Ruia, Director of Essar Groups speaks to Bloomberg in an interview. (Photographer: Scott Eells/Bloomberg News)
Prashant Ruia, Director of Essar Groups speaks to Bloomberg in an interview. (Photographer: Scott Eells/Bloomberg News)

Promoters of Essar Steel Ltd., the Ruia family, have offered to repay creditors of the steel firm in an attempt to withdraw it from the insolvency resolution process.

In a press statement on Thursday, the company’s shareholders said they are willing to pay Rs 54,389 crore to creditors. The company said that Essar shareholders will offer upfront cash payment of Rs 47,507 crore to all creditors. This included Rs 45,559 crore to the senior secured financial creditors.

Essar Steel owes its financial and operational creditors Rs 54,394 crore as per data provided by the resolution professional on the company’s website.

Board and shareholders of Essar Steel offer to make payment aggregating Rs 54,389 crore to creditors of all classes under Section 12A of IBC to withdraw company from corporate insolvency resolution process.
Essar Steel Statement

Introduced in June 2018, Section 12A of the Insolvency and Bankruptcy Code, 2016 says the National Company Law Tribunal may allow withdrawal of an insolvency application by the person who filed the case if such withdrawal gets the approval of ninety percent voting share of the committee of creditors. In July an IBC regulation laid down that such a withdrawal application can only be accepted before issue of invitation for expression of interest by the resolution professional.

In the Essar Steel matter, the process has moved way ahead and is almost close to finalisation of resolution applicant. Last week, the committee of creditors had picked ArcelorMittal as the preferred bidder. As BloombergQuint had reported earlier ArcelorMittal had bid Rs 42,000 crore, the most among the three players in the second round of bidding. After being picked as the winning bidder the Essar Steel Committee of Creditors, tasked with the job of insolvency resolution, were in negotiation with ArcelorMittal on the price.

Also, in order to qualify under the Section 29A eligibility criteria, earlier this month ArcelorMittal approved a payment of Rs 7,469 crore (approx. $1 billion) to the financial creditors of Uttam Galva Steels Ltd. and KSS Petron Pvt. Ltd. The Supreme Court had found ArcelorMittal to be promoter of both these non-performing assets and hence eligible to bid for Essar Steel only if their dues were paid.

In their statement Essar Steel’s promoters argue that their offer is better than that of ArcelorMittal as they are willing to pay all financial creditors, unsecured creditors and operational creditors.

We believe our proposal will provide 100% recovery to secured creditors and lenders, and maximum recovery for unsecured creditors. This 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 process.
Prashant Ruia, Director, Essar

ArcelorMittal has shrugged off the new Ruia offer. In a media statement the global steel major argued that the law permits withdrawal of insolvency application only before expressions of interest are invited, not at this late stage in the insolvency process.

The expressions of interest for Essar Steel were issued in October 2017. ArcelorMittal has complied with the Supreme Court order, we have settled the overdues of Uttam Galva and KSS Petron and we have the bank guarantees in place for the payment for Essar Steel. We expect the process to continue as per the clear terms of the IBC.
ArcelorMittal Statement - Oct. 25, 2018

The offer to pay all creditors and that the rules determining insolvency application withdrawal were amended only recently may weigh in favour of the Ruias.

But two factors work against this last ditch effort of theirs to retain their flagship asset - the stage the resolution process is in and that ArcelorMittal is already some several thousand crores out of pocket.

The matter will most likely end up in the Supreme Court, said one veteran lawyer on the condition of anonymity.

Watch the discussion with lawyers Shardul Shroff and Nilang Desai here.

The Case Background

Essar Steel is among the first 12 non-performing assets that RBI had directed banks to take to insolvency resolution in June 2017. The Ruia family-promoted company owes Rs 49,394 crore to its financial creditors and approximately Rs 5,000 crore to operational creditors.

The company’s lenders, led by State Bank of India, had filed an insolvency petition in July 2017 and the National Company Law Tribunal admitted the case in August that year.