Published: March 22, 2018 |

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A consortium of bankers, led by the State Bank of India (SBI), has rejected the bids submitted by both ArcelorMittal and Numetal for Essar Steel as they were found ineligible under Section 29A of the Insolvency and Bankruptcy Code (IBC).

Arcelor and Numetal can now submit fresh bids for Essar Steel, which has an annual capacity of 10 million tonnes. Others who had submitted their expressions of interest such as Tata Steel, Nippon Steel, SAIL and Vedanta can also bid.

However, reports suggest Tata Steel, Vedanta and JSW Steel have decided against bidding.

Interested parties will have to submit their bids before April 2. Essar Steel owes close to Rs 45,000 crore to the lenders and the 270-day time limit for a resolution under the IBC ends on April 29.

This decision was taken at a meeting of Essar Steel’s committee of creditors (CoC) here on Wednesday after the resolution professional found that the bids were ineligible under Section 29A of the IBC.

The Center had amended the IBC last year to keep defaulting promoters out of the resolution process.

REJECTION POINTS

Luxembourg-based ArcelorMittal had teamed up with Nippon Steel & Sumitomo Metal Corp to bid for Essar Steel. However, Arcelor’s joint venture with Uttam Galva, which is at the NCLT awaiting resolution now, made it ineligible to bid for Essar Steel.

ArcelorMittal had, subsequently, sold its stake in Uttam Galva to avoid exclusion.

Numetal’s bid was done in by the fact that one of the promoters of this special purpose vehicle was Rewant Ruia, the son of Essar Group promoter Ravi Ruia, one of the original owners of Essar Steel.

WAY OUT

Bankers, however, said if these companies delinked their connection with the promoters or standardized their loans they could bid again in the second round.

The amendments to the IBC had added a new clause to Section 29 which barred certain parties from bidding for NCLT assets.

The clause states that a person shall not be eligible to submit a resolution plan, if he or any other entity acting jointly or in concert is an “undischarged insolvent” or a wilful defaulter in line with the guidelines of the Reserve Bank of India (RBI).

Promoters of the defaulting companies can submit a resolution plan, provided they pay all overdue amounts, including interest for the account that has become an NPA.

The development comes on a day Numetal filed an application before the Ahmedabad bench of the NCLT, seeking a declaration that it was eligible to submit a resolution plan for Essar Steel.

The shareholders of the Mauritius-based Numetal, which focuses on steel and infrastructure along with manufacturing, are VTB Capital, the PE arm of the Russian state-owned lender VTB Bank, and Aurora Trusts, in which Rewant Ruia is a beneficiary and owns 25 percent.

The other promoters include the Russian steel and engineering major TyazhPromExports (TPE) and Indo International, a Dubai-based metals trading firm promoted by an NRI. VTB Capital owns the majority in Numetal.

The bids were evaluated by resolution professional Satish Kumar Gupta, along with risk advisory Grant Thornton and law firm Cyril Amarchand Mangaldas.

OPEN TO CHANGE

It can be noted that both Numetal and ArcelorMittal had threatened to challenge the NCLT and the resolution professional in higher courts if their bids were rejected, forcing government to recently hint that it was amenable to make more changes to Section 29 of the IBC to redefine “connected/related parties” to exclude only original promoters who are defaulters from bidding for an asset that has gone to the bankruptcy court.

The move is to distinguish between the promoters of defaulting companies that don’t have a managerial role from those who also manage the stressed assets.

According to reports, the corporate affairs ministry is considering two amendments to change the definition of “connected people”.

Now, a promoter or an investor in a defaulter is not eligible to participate in the auction of stressed assets referred to the NCLT. The Mittals have also reportedly offered to pay 50 percent of dues to lenders so that they becomes eligible to bid, something the new Section 29 A allows.

Source: The Telegraph

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