Edelweiss ARC Tops Up Essar Steel Debt With Resolution Process Underway
Edelweiss ARC buys Rs 2,000 crore Essar Steel loans from IOB.
Financial major Edelweiss Group’s asset reconstruction company has virtually doubled the debt it controls in beleaguered steelmaker Essar Steel.
In a bid to consolidate the debt, Edelweiss Asset Reconstruction Company Ltd. bought out Rs 2,000 crore worth of Essar Steel loans from Indian Overseas Bank, two people in the know said.
After the purchase, the total Essar Steel debt under Edelweiss ARC’s control stands at Rs 5,000 crore or around 11 percent, making it the second largest lender in the Rs 45,000 crore consortium, after State Bank of India.
The deal, which concluded on Tuesday, was done at a 40 percent discount to the book value of the loans. ICICI Bank, which sold a portion of its Essar Steel exposure to Edelweiss ARC in June 2016, had taken a 45-50 percent haircut on the loan value, according to the two people quoted above. Other lenders such as Axis Bank, HDFC Bank and Federal Bank have also sold their Essar Steel loans to Edelweiss ARC but the values are not known.
The sale involved paying 15 percent of the deal value upfront and issuing security receipts for the rest.
Edelweiss ARC and Essar Steel declined to confirm the development. IOB spokespersons were not immediately available for comment.
Essar Steel’s Insolvency Process
Essar Steel is one of the largest cases being resolved under the insolvency and bankruptcy process, after the Reserve Bank of India included it in a list of 12 large corporate accounts for immediate action in June.
The case was admitted under the insolvency process to the National Company Law Tribunal and Satish Kumar Gupta was appointed as a resolution professional to manage the case.
Prior to this, banks had been trying various restructuring tools to resolve the stress in the account but with no success.
Under the insolvency process, financial creditors and the resolution professional need to arrive at a viable resolution plan within 180 days. This period can be extended to 270 days, after receiving NCLT approval. If the creditors are not able to come up with a viable plan within this time period, liquidation is triggered and the assets of the company are sold to recover money.
For a resolution plan to be accepted it needs the approval of more than 75 percent of the creditors, after which, an NCLT approval is also needed.
What Explains Edelweiss ARC’s Move?
Under the Insolvency and Bankruptcy Act a resolution process is managed by the resolution professional but controlled by the committee of creditors. The voting share of a creditor depends on the proportion of debt he holds.
Consolidation of loans at a time when the resolution process is underway suggests that an ARC wants to have a larger say in or control of the resolution.
Presently, the creditors in the Essar Steel case have only met once to take on record the facts of the case. According to the two people quoted above, the resolution professional is currently working to collect and verify information regarding the financials of the company. The next meeting is slotted sometime next month, the people confirmed.
As such, Edelweiss ARC has offered to lend Rs 800 crore to Essar Steel in the form of interim financing to keep the company’s operations afloat, BloombergQuint had reported earlier this month. The committee of creditors is yet to approve this proposal.