On January 16, the State Bank of India (SBI) announced its decision to auction its entire loan exposure worth Rs. 15,431.44 crore in Essar Steel India Ltd. to asset reconstruction companies, banks and financial institutions. Calling the buyers to bid on January 30, the bank has kept the reserve price for sale of its exposure at Rs. 9,587.64 crore.
This development comes at a time when the National Company Law Tribunal, Ahmedabad, (NCLT) is scheduled to pronounce its order on January 31- on whether to allow Essar Steel Asia Holdings Ltd. (ESAHL) to settle the entire debts of Essar Steel or to approve ArcelorMittal’s resolution plan. The ArcelorMittal resolution plan had been earlier approved by the Committee of Creditors (CoC) in which SBI is a major stakeholder, as part of the Insolvency and Bankruptcy Code (IBC) resolution process. But, the SBI’s sudden move to auction its exposure to Essar Steel at this crucial juncture is putting the entire IBC resolution exercise and the integrity of the IBC law under question.
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Considering the offer by ESAHL- which holds 72 per cent of shares in Essar Steel- to settle the total debt of about Rs. 54,389 crore owed by Essar Steel, experts have questioned why the SBI wants to sell its loan at significantly lower prices.
Questioning the SBI’s move, Sucheta Dalal wrote in Moneylife, “This is extremely strange because the SBI was part of the CoC, which has already approved of LN Mittal’s bid of Rs. 42,000 crore, and it is the largest lender in this group. Also, when Essar Steel itself has promised full repayment, including money to unsecured creditors, why is SBI in such a hurry to flog the loans at what may be a significantly lower price? After all, SBI is a public sector bank (PSB) and this is public money.” Dalal has also questioned how the Essar Group will suddenly repay all the debt, while its subsidiary Essar Group has been a wilful defaulter for more than one and half years now.
It is to be noted that the Essar group has a record of defaulting on repayment obligations to overseas lenders as well and is facing multiple litigations and recovery actions abroad.
Essar steel has a 10 million tonne (mt) per annum mill in Hazira, Gujarat, which is involved in ore beneficiation, pellet making, iron making, steel making, and downstream facilities.
The following key developments have taken place in the Essar Steel’s IBC resolution process:
June 2017: The Reserve Bank of India declared the Essar Steel as a Non-Performing Asset (wilful defaulter) and notified to initiate the IBC resolution process.
August 2017: NCLT Ahmedabad began hearing the Essar Steel’s case while a CoC and resolution professionals initiated the IBC resolution process.
April 2018: NCLT ordered the CoC to reconsider resolution plans submitted by NuMetal Mauritius and ArcelorMittal India. While one of the owners of NuMetal is Rewant Ruia, a member of Essar Steel promotor family, ArcelorMittal was founded by LN Mittal.
October 4, 2018: The Supreme Court granted one more opportunity to ArcelorMittal and NuMetal to bid for Essar Steel if they clear their Non-Performing Asset (NPA) dues in two weeks.
October 25, 2018: Essar Steel’s CoC voted in favour of handing over the debt-laden company to ArcelorMittal after it cleared pending dues of about Rs. 7000 crore of its associated companies - Uttam Galva and KSS Petron. ArcelorMittal’s resolution plan envisaged an upfront payment of Rs. 42,000 crore to lenders and an additional Rs. 8,000 crore towards capital expenditure.
On the same day, Essar Group’s ESAHL proposed to the CoC that it will repay Essar Steel’s total debt of Rs. 54,389 crore and reclaim its subsidiary.
January 16, 2019: SBI, a major lender of Essar Steel, announced to auction its entire loan exposure worth Rs. 15,431.44 crore.
However, considering Essar Group’s efforts to delay the IBC process or the bidding of NuMetal, it is evident that the group has been desperate to retain its steel manufacturer company despite its inability to repay massive debts.
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Even though the next NCLT judgment in this case can be challenged in the Supreme Court and the SBI gets out of the IBC process, the IBC law is failing its purpose.
As per the official data, of the more than 900 cases in which the IBC process has begun since March 2017, only 18 cases have been closed under the resolution plans and 76 cases related to smaller businesses have been liquidated, so far.