Essar Steel buy: ArcelorMittal, Ruias gear up for legal battle

The battle to acquire Essar Steel India Ltd (ESIL) is set to snowball into a legal wrangle with both ArcelorMittal and the Ruias claiming the right to own the stressed asset. 

While ArcelorMittal’s case seems to be weightier, as its ₹42,000-crore bid has won the approval of Essar Steel’s Committee of Creditors (CoC), the Ruias, the former promoters of the steel company, are exploring weighing legal action if their ₹54,389-crore counter offer is not considered by lenders.

On Friday, ArcelorMittal revealed its blueprint for ESIL, which included increasing its finished steel shipments to 12-15 million tonnes (mt) through the addition of new iron and steel making assets. ESIL’s current annualised crude steel production is 6.5 mt.

“The company’s intention is to increase ESIL’s finished steel shipments to 8.5 mt over the medium term. This will be achieved by initially completing ongoing capital expenditure projects and infusing expertise and best practices to deliver efficiency gains, and then through the commissioning of additional assets, while simultaneously improving product quality and grades to realise better margins,” ArcelorMittal said in a statment. 

Approval for ArcelorMittal

On Thursday, Essar Steel’s CoC had voted to approve ArcelorMittal’s bid. The Insolvency Resolution Professional, on behalf of the CoC, has issued ArcelorMittal a letter of intent (LoI) saying it has been identified as the ‘Successful Applicant’.

ArcelorMittal’s insolvency resolution plan includes an up-front payment of ₹42,000 crore towards ESIL’s resolution debt, with a further ₹8,000 crore of capital injection “to support operational improvement, increase production levels and deliver enhanced levels of profitability.” In line with the corporate insolvency process, the plan must now be formally accepted by the NCLT, it said, aadding that the acquisition will would be completed by 2018-end.

Post deal, ArcelorMittal will own and operate ESIL in partnership with Nippon Steel and Sumitomo Metal Corporation (NSSMC).

But ArcelorMittal will face a challenge from the Ruias, who have offered to clear the entire debt of Essar Steel and take it out of the insolvency process. The Ruias have latched on to an amendment introduced in the Insolvency and Bankruptcy Code (IBC) in June, called Section 12A. Under this, a company can withdraw from the IBC process if 90 per cent of the lenders agree to it. However, the Ruias may find it tough to take cover under this rule because subsequently it was clarified that an offer to withdraw should be made prior to the expression of interest (EoI) date. 

In this case, Essar Steel was taken before the NCLT on August 2, 2017 and the EoI date was October 20, 2017. Section 12A did not exist then. “In the true spirit of the June 2018 amendment, an opportunity to withdraw from the IBC process under Section 12A should not be denied to ongoing cases where the EoI stage was over prior to this amendment,” said an Essar Group spokesperson. 

“There are instances in the context of IBC where the CoC and judicial forums have made exceptions to the process. Even in the case of Essar Steel, ArcelorMittal was given flexibility to cure its their ineligibility by making payment of overdues post submission of bid,” the spokesperson added. 

Experts also raised questions over the IBC process. “Earlier, in the Binani Cement case, Ultratech came from behind to do a deal with the promoters of Binani Cement, even after the lenders had decided to pick the bid put in by Dalmia Cements. The offer by Essar will further test the IBC,” said an expert.

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