Essar Steel Lenders Decide To Refer Case To Bankruptcy Court
Essar Steel account to be referred to NCLT for insolvency proceedings.
Lenders to Essar Steel Ltd, on Thursday, approved a plan to refer the case for resolution under the Insolvency and Bankruptcy Code (IBC), two bankers present at the meeting told BloombergQuint on the condition of anonymity. The case will now be referred to the National Company Law Tribunal.
The consortium of 19 lenders, who are looking at ways to resolve the stress in the steel account met in Mumbai, after receiving a direction from the Reserve Bank of India (RBI) last week.
The RBI’s directive said that 12 large accounts, with outstanding dues of over Rs 5000 crore and where 60 percent of the debt has turned bad, need to be resolved under the IBC. On June 16 BloombergQuint reported, based on conversations with four bankers, that Essar Steel was one of the 12 cases.
Once the case has been admitted to the NCLT under insolvency proceedings, the company’s board of directors would be suspended and an insolvency professional would be appointed, who will be running the daily activities at Essar Steel. The professional will also be working on a resolution professional to turn the company around.
On Wednesday, BloombergQuint reported that a deal to bring in an American hedge fund Farallon Capital, which would provide bridge financing to Essar Steel, was not on the table. This deal was part of a broader restructuring plan that bankers and promoters had been working on but failed to close.
A spokesperson for Essar Steel said that the company has not heard from the bankers yet.
Five out of the 12 cases shortlisted for insolvency by the RBI are steel accounts. An ICRA statement on Thursday pegged steel sector NPAs at Rs 1.15 lakh crore as on March 31, 2016. That’s 37 percent total bank loans to the steel sector.
We feel that the insolvency proceedings for stressed accounts may lead to consolidation in the steel sector, whereby stronger steel players with healthy financial profile would have a chance to increase their market share by bidding for these assets at attractive valuations. In such a scenario, the steel sector, faced with a weak demand and an overcapacity situation would benefit in the long run.Jayanta Roy, Senior VP and Group Head-Corporate Sector Ratings, ICRA
Over the course of this week, lenders are meeting to approve a number of cases for admission to NCLT.
So far, bankers have approved insolvency proceedings in cases such as Lanco Infratech Ltd, Jaypee Infratech Ltd, Monnet Ispat & Energy Ltd and Bhushan Power & Steel Ltd, said the two bankers quoted above. Other companies where decisions are pending include Alok Industries Ltd, Amtek Auto Ltd, ABG Shipyard, Era Infra and Engineering Ltd and Jyoti Structures Ltd.
Once the cases are admitted to NCLT, a committee of financial creditors is created and an insolvency resolution professional is appointed in each case. The resolution professional and the committee have 180-270 days to arrive at a resolution plan, which has to be approved by the NCLT. In the absence of a plan at the end of the 270 day period, the case automatically goes into liquidation.