ArcelorMittal’s ₹42,000-crore bid for Essar Steel gets NCLAT nod

Suresh P Iyengar Mumbai | Updated on July 04, 2019

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Banks to suffer bigger haircut as new ruling give more to operational creditors

The National Company Law Appellate Tribunal (NCLAT) has approved the ₹42,000-crore bid placed by ArcelorMittal to take over the insolvent Essar Steel. But the lenders will have to take a larger haircut as the tribunal has allowed a bigger share of the proceeds to operational creditors than what was envisaged by the Committee of Creditors (CoC).

The NCLAT also rejected a plea by the lead shareholder of the debt-laden Essar Steel challenging the eligibility of ArcelorMital.

While suggesting changes in the way the proceeds are distributed among the claimants, Justices SJ Mukhopadhaya and Bansi Lal Bhat enhanced the operational creditors’ dues to ₹19,719 crore, against the earlier ₹5,074 crore, by including the claims of Dakshin Gujarat, Gujarat Energy, BPCL, IOCL, GAIL, ONGC and NTPC. 

Of this, the operational creditors will get ₹11,969 crore. This has pushed up the overall claims to ₹69,192 crore from ₹54,547 crore. 

Claims from financial creditors were retained at ₹49,473 crore; of this, they will get ₹30,030 crore. The total haircut to be taken by the lenders has now gone up to 40 per cent, compared to 20 per cent earlier. The aggrieved banks are likely to move the Supreme Court against the NCLAT order.

Employees, unsecured financial creditors and operational creditors whose claims are less than ₹1 crore will be paid their entire dues.

The NCLAT also ruled that the profit of ₹3,495 crore generated during the corporate insolvency resolution process should be distributed amongst all the financial and operational creditors on a pro-rata basis of their claims and cannot be given to ArcelorMittal.

The ruling said the lenders, being claimants at par with operational creditors, cannot share the amount amongst themselves — particularly, one/some cannot keep a bigger amount.

An ArcelorMittal spokesperson said the company needs to review the full written order to understand any implications on the completion of the transaction.

An Essar spokesperson said it appears that new facts regarding ineligibility under Section 29A, which emerged only after the previous judgment of the Supreme Court, have not been given due consideration. 

‘Negative for banks’

Terming the judgment negative for banks, a corporate lawyer said while it does not distinguish between secured and unsecured financial creditors, it gives operational creditors the same priority as lenders.

The Lakshmi Mittal-led ArcelorMittal has been fighting for the control of Essar Steel for over two years. The case has seen many twists and turns, including a settlement plan of ₹54,389 crore made by Essar Steel promoters, who offered to pay off the entire debt. The plan was, however, rejected by the NCLT.

Published on July 04, 2019

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