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State-owned Indian Overseas Bank has sold its bad debt exposure of ₹1,500 crore in Essar Steel to Edelweiss Asset Reconstruction Company at a 50 per cent discount to its book value, said sources close to the development.
The deal comes even as the National Company Law Tribunal declared Essar Steel insolvent and appointed an insolvent professional to manage the company. Fearing a huge hair-cut, banks are selling their bad loans to asset reconstruction companies at big discounts.
Interestingly, Edelweiss has been mopping up the bad debt of Essar Steel from lenders. Last October, Axis Bank sold ₹2,000 crore of its bad debt with Essar Steel Ltd to Edelweiss Asset Reconstruction. Similar deals were also executed by ICICI Bank, HDFC Bank and Federal Bank early last year before the company was declared insolvent.
With an exposure of over ₹5,000 crore, the Edelweiss ARC has emerged the fifth largest lender to Essar Steel. In previous cases, the Edelweiss deal was executed in the 15-85 structure, wherein the ARC shells out 15 per cent of the net asset value as upfront payment. Essar Steel owes lenders roughly ₹45,000 crore, of which ₹31,671 crore is bad debt.
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