ArcelorMittal signage is displayed on a locomotive at the company’s steel mill complex in Ohio, U.S. (Photographer: Luke Sharrett/Bloomberg)

ArcelorMittal’s Proposal Holds Back Essar Steel Lenders From Making A Decision

It should have been a simpler process, but it isn’t anymore.

After the order from National Company Law Appellate Tribunal on Sept. 7, ArcelorMittal had only till today to repay dues worth Rs 7,000 crore in Uttam Galva Steels Ltd. and KSS Petron Ltd. to become eligible to bid for Essar Steel Ltd. But yesterday, the Luxembourg-based steelmaker sent a letter to Essar Steel creditors, adding a twist to the offer. BloombergQuint has reviewed a copy of the letter.

While ArcelorMittal increased the offer to Rs 42,000 crore from its earlier bid of about Rs 31,000 crore, it also approached the Supreme Court challenging the NCLAT order on its eligibility. This is where things get interesting.

In its letter, ArcelorMittal points out that it firmly believes that the company is not liable to pay for the dues of Uttam Galva and KSS Petron.

We are not the debtors in relation to the debt of Uttam Galva and KSS Petron and have not obtained any financial or non-financial advantage, and no nominee or representative of AM (ArcelorMittal) has ever been on the board of directors of either company... Please note that the AM proposal must in no way be construed as an admission of the purported ineligibility of any company in the ArcelorMittal group to submit a resolution plan under the IBC or otherwise, nor is it in derogation of our right to avail of appellate remedies against this order. 
ArcelorMittal’s Letter To Essar Steel’s Committee of Creditors

The letter to Essar Steel’s creditors is essentially ArcelorMittal asking the lenders to either take the entire revised offer and declare them the winning bidder, or risk the Lakshmi Mittal-led company winning the eligibility question at the Supreme Court and miss out on the Rs 7,000-crore repayment of Uttam Galva and KSS Petron dues.

The Luxembourg-based steelmaker’s offer is higher than the Rs 37,000-crore bid of its nearest competitor Numetal Mauritius.

As such, at a meeting yesterday, the committee of creditors decided that they will wait for the Supreme Court to take the final decision on the eligibility of both ArcelorMittal and Numetal before they decide on the highest bid, said a person present at the meeting requesting anonymity. The creditors have chosen to stick with the principle of maximisation of value within the parameters of the Insolvency and Bankruptcy Code, and thus, cannot disregard ArcelorMittal’s offer, the person said.

All eyes will be on what the apex court decides. It heard ArcelorMittal’s plea today and said it will hear the matter further tomorrow, without giving any extension to NCLAT’s Sept. 11 deadline to repay Uttam Galva and KSS Petron dues.

ArcelorMittal didn’t respond to queries emailed by BloombergQuint. A spokesperson for Numetal said, “Please address your query to relevant authority. We follow the NCLAT order as of now.”

Going by the NCLAT order, and in absence of any relief from the Supreme Court, ArcelorMittal must repay the dues to Uttam Galva and KSS Petron creditors by the end of the day. Without that, the bidder risks being tagged as ineligible by the committee of creditors.

Also read: Mittal's Good Essar Show Mired in Legal Farce

The Essar Steel insolvency process has become a case study in the application of Section 29A of the Insolvency and Bankruptcy Code to determine the eligibility of bidders.

The NCLAT, in its Sept. 7 order, said since ArcelorMittal was classified as a promoter for Uttam Galva and that it had a stake in KSS Petron’s parent company, the steelmaker would have to repay dues in both the companies become eligible. Section 29A doesn’t allow promoters of defaulting firms to participate in bidding.

In the case of Numetal, the connection was more direct. Aurora Enterprises, a trusteeship, owned a 25 percent stake in Numetal. It was disclosed by the investor that Rewant Ruia, who is part of the promoter family that owns Essar Steel, is the ultimate beneficiary of the trusteeship. Before submitting the second bid, the remaining shareholders of Numetal bought out the stake owned by Aurora Enterprises, thereby curing themselves of issues relating to Section 29A, making the bidder eligible.

Anil Agarwal’s Vedanta Group has also submitted a bid for Essar Steel. The value of the bid will be disclosed to the committee of creditors after Satish Kumar Gupta, the resolution professional, ascertains the eligibility of the bidder.

Also read: Essar Steel’s Insolvency: Is Numetal One Up On ArcelorMittal?