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Tata Steel’s bid to acquire Bhushan Steel has gained pace, with lenders giving the deal their assent. The Tata group company has agreed to pay about ₹35,000 crore to the creditors of Bhushan Steel, which had defaulted on loans worth ₹44,480 crore.
Tata Steel accepted the Letter of Intent for Bhushan Steel on Thursday, under the Corporate Insolvency Resolution Process of the Insolvency and Bankruptcy Code (IBC), 2016, it said in a statement on Friday. However, there are still some hurdles it has to cross before completing the acquisition.
For starters, Larsen & Toubro (L&T) has filed an application before the NCLT seeking to be reclassified as a ‘secured’ rather than as an ‘operational creditor’ under the IBC, so that it gets priority in recovering ₹900 crore for supplying capital goods.
L&T had bagged a ₹1,205-crore order from Bhushan Steel to construct the latter’s plant in Odisha in September 2007, but its dues were not paid fully though the work was completed.
If the NCLT accepts L&T’s plea then the banks will have to take a bigger haircut and if the plea is rejected, L&T may move the National Company Law Appellate Tribunal to protect its interest.
Employee objections ignored
The employees of Bhushan Steel had also moved the NCLT objecting to the eligibility of Tata Steel under Section 29 of the IBC. Following this, the NCLT had directed the Committee of Creditors to consider the employees’ objections. But with the committee officially announcing Tata Steel as the highest bidder, it seems the employees’ objections have been set aside.
The NCLT will now take the final call on the Tata Steel bid.
Interestingly, the extended resolution period for Bhushan Steel ends on April 22. The company’s insolvency resolution process plea was admitted by the NCLT on July 26 and the initial mandate of 180 days ended in December 2017.
If Tata Steel’s bid gets through the NCLT approval process, it will be a major confidence builder for public sector banks, which are struggling to recover loans extended to the highly-leveraged steel sector. Tata Steel’s hefty bid will imply a minimal haircut for Bhushan Steel’s lenders.
But for Tata Steel, this could mean that its overall debt rises further.
The company had a gross debt of ₹88,000 crore as of the December quarter and it could cross the ₹1 lakh crore mark in the next two-three years.
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