Essar Steel: SBI moves to encash Ruias’ ₹15,000-cr guarantee

Suresh P Iyengar Mumbai | Updated on April 28, 2019 Published on April 28, 2019

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With the debt recovery process under the Insolvency and Bankruptcy Code getting delayed, State Bank of India has moved the Debt Recovery Tribunal (DRT) to encash personal guarantees worth ₹15,000 crore extended by the promoters of Essar Steel.

In one of the largest-ever personal guarantee cases filed in India, SBI has moved the tribunal in Ahmedabad with a suit against Prashant and Ravi Ruia — Essar Steel’s promoters — to recover the amount.

Essar Steel’s lenders are saddled with dues of over ₹63,000 crore, including overdue interest and penalties. Lenders had filed an insolvency case against the company in 2017. Early last month, the NCLT approved the ₹42,000-crore bid placed by ArcelorMittal, leading to a hair-cut of ₹21,000 crore for lenders. SBI has now moved the DRT to recover the shortfall in Essar Steel’s dues.

An Essar official, who did not want to be named, said the promoter guarantees are not at risk because the ongoing debt resolution process will repay at least 92 per cent of the debt to the secured financial creditors. Under the insolvency process, admitted claims of secured financial creditors of Essar Steel amounted to ₹45,000 crore.

Per Arcelor Mittal’s resolution plan, secured financial creditors will get about ₹42,000 crore. Further, EBITDA earned by the company is to be paid to creditors. “Thus, there will hardly be any shortfall to secured financial creditors. Personal guarantees were extended for only part of secured loans (about ₹11,000 crore). Considering a recovery as above from the approved resolution plan, there may not be any shortfall and guarantees are not at risk,” the official said.

Speaking to BusinessLine, an Essar spokesperson said: “Total admitted dues of the secured creditors as verified by the Resolution Professional of Essar Steel are ₹45,000 crore. Essar Steel Asia Holdings Ltd has already offered to repay the secured creditors these dues in full, and Arcelor Mittal’s plan provides for ₹42,000 crore.”

SBI had invoked the personal guarantees of the Ruias about 6-8 months back and has now filed suit seeking an order from DRT. A DRT decree will lead to attachment of all personal assets of the Ruias in India and abroad, said a source.

Twist and turns

The Essar Steel case has gone through many twist and turns, including the offer from Essar Steel promoters Ruias to repay the entire outstanding debt (excluding penalty) of ₹54,389 crore. However, the NCLT rejected the Ruias offer and approved ArcelorMittal’s plan.

But then the Supreme Court has ordered a status quo in the case and ordered ArcelorMittal not to deposit any money with the banks after some operational creditors objected to the manner in which the money from ArcelorMittal is to be distributed among creditors.

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Published on April 28, 2019
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