Frustrated over the inordinate delay in the ongoing insolvency proceedings, State Bank of India has put its ₹15,431-crore exposure to the stressed assets of Essar Steel on the block.

The proceeding against Essar Steel under the Insolvency and Bankruptcy Code has been going on for over 500 days, with no resolution in sight. Legal wrangles, counter offers and changing rules have complicated the case. SBI’s move caught market experts by surprise and has raised the possibility of similar action by other banks stuck in the insolvency proceedings.

The country’s largest bank has set a reserve price of ₹9,588 crore for the e-auction, which will be conducted on 100 per cent cash basis on January 30. The exposure is being put up for sale to asset reconstruction companies, banks, non-banking finance companies, and financial institutions.

15% haircut

The reserve price indicates a haircut of about 15 per cent on the ₹11,308 crore SBI would have recovered if the proposal of leading bidder ArcelorMittal had been accepted.

While ArcelorMittal has offered to pay ₹42,000 crore for the stressed asset, Essar Steel Asia Holdings, part of the defaulted promoter Ruias-owned Essar Group, has placed a bid of ₹54,389 crore which was not considered by the lenders.

Bankers expect an aggressive bidding considering that they can recover the entire money if Essar Steel’s resolution plan is accepted, said a banking source.

If the auction is successful, lenders can not only whittle down their bad loans but also reverse the provisions already made towards the stressed account, thereby shoring up the balance-sheet ahead of this financial year-end, said a senior public sector bank official.

More on the block

Depending on the response to the auction, bankers expect more such large stressed corporate accounts, which are awaiting resolution at the National Company Law Tribunal (NCLT), to be put on the block this quarter.

The Essar Steel case has gone through multiple twists and turns over the last 18 months. As things stand, the Ahmedabad Bench of NCLT has reserved its verdict till January 31 on the maintainability of Essar Steel Asia Holdings’ offer to repay the entire debt and retake the management of the debt-laden company.

Irrespective of the outcome at the NCLT, one of the aggrieved bidders is bound to go to the Supreme Court, and it will take 2-3 three months for the case to be settled, the banker said.

Despite pricing its Essar Steel exposure at a discount, SBI may not be seeing it as a loss as it has already received ₹7,469 crore against two stressed accounts — Uttam Galva and KSS Petron — from ArcelorMittal, the leading bidder for Essar Steel, said an analyst. ArcelorMittal had paid the amount to make itself eligible for Essar Steel bidding.

 

E-auction on Jan 30

SBI has set a reserve price of ₹9,588 crore for the e-auction, which will be conducted on a cash basis on January 30

ARCs, banks, NBFCs and financial institutions can participate in the auction

 

 

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