A pedestrian passes in front of the Essar Group corporate offices in Mumbai, India (Photographer: Prashanth Vishwanathan/Bloomberg)

Arcelor, VTB Hit Snag in Pursuit of $6 Billion Indian Steelmaker

(Bloomberg) -- ArcelorMittal and Russia’s state-controlled VTB Group have hit a fresh snag in their pursuit of Essar Steel India Ltd., an insolvent producer that could fetch at least $6 billion. 

Advisers evaluating the offers for Essar Steel are recommending that all the bids be disqualified, according to people with knowledge of the matter. A committee of Essar Steel lenders will meet later this week to discuss the eligibility of the proposals, the people said, asking not to be identified because the information is private.

Legal and accounting advisers expressed concerns to the interim resolution professional overseeing the sale about the eligibility of the offers from both ArcelorMittal and a rival VTB-led consortium, the people said. The advisers’ opinion is meant as a guide, and there’s no certainty the bids will be blocked, according to the people. Any final decision will involve the lenders’ committee and India’s National Company Law Tribunal, the people said.

ArcelorMittal, the world’s biggest producer of the alloy, submitted a higher offer than the VTB investor group, which is backed by the son of a billionaire founder of Essar Steel, the people said. There were only two bids for the steel company, which could fetch a valuation of at least $6 billion, people with knowledge of the matter said earlier.

Billionaire’s Son

Essar Steel was owned by billionaire brothers Shashi and Ravi Ruia before being brought under a new insolvency resolution process that was designed to clear out distressed companies through asset sales. The two advisers based their opinions on new Indian bankruptcy rules aimed at making it difficult for founders of firms with long-term non-performing loans from bidding for assets in insolvency proceedings. 

ArcelorMittal was considered ineligible to bid because it held a stake in Uttam Galva Steels Ltd., which is classified as a delinquent borrower, when it made its offer for Essar Steel, the people said. A unit of ArcelorMittal transferred 29.1 percent stake in the Mumbai-based company to other Uttam Galva founders, according to an exchange filing earlier this month.

The VTB investor group was deemed ineligible because its backers include Rewant Ruia, the son of former Essar Steel owner Ravi Ruia, the people said. The VTB consortium submitted a bid through a Mauritius-based investment vehicle called Numetal, in which the Russian financial group is the largest shareholder, people familiar with the matter said earlier.

Japanese Partner

“We have not received any such information from the Resolution Professional or his legal advisors,” a representative for Numetal said in an emailed statement. “Numetal is a fully eligible resolution applicant and has submitted its resolution plan for Essar Steel.”

A representative for Essar Steel declined to comment. An external spokesman for ArcelorMittal said the company doesn’t believe there is any legal basis under which it would be considered ineligible to participate in the process. 

“ArcelorMittal was never the promoter of Uttam Galva,” he said in an emailed statement. “We had no board representation and no involvement in the management of the company even before selling our shareholding.”

ArcelorMittal will be able to bring financial heft to the deal, N Vaghul, a former director on the board of the world’s largest steel producer, said in a phone interview. 

“The law was intended for an entirely different purpose. One has to look at the spirit of the legislation,” Vaghul said. “It would be very sad if the company is disqualified.”

ArcelorMittal partnered with Nippon Steel & Sumitomo Metal Corp. for its offer, people with knowledge of the matter said earlier. Essar Steel has claims of about 518 billion rupees ($8 billion) that have been admitted under the insolvency process.

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