Davos 2019: Aditya Mittal Calls Ruias’ Bid For Essar Steel A Tactic To Delay Resolution
The Ruia family’s delayed offer for Essar Steel Ltd. is a bid to prevent the right resolution of the stressed asset and banks should follow the law, according to Aditya Mittal, president of ArcelorMittal that was selected by the lenders as the highest bidder under the insolvency code.
Mittal’s comment came after billionaire Sajjan Jindal, chairman of JSW Steel Ltd., told BloombergQuint that the Ruias should be given a chance as the erstwhile promoters were willing to repay the debt in full. ArcelorMittal, in a statement, termed it as a suggestion that sends a negative signal about the certainty of India as an investment destination.
“These tactics are to delay, to frustrate and prevent the right resolution for the company,” Mittal told BloombergQuint on the sidelines of the sidelines of the World Economic Forum 2019 at Davos, Switzerland. “It’s very important that the IBC [Insolvency and Bankruptcy Code] process is followed.”
The U.K.-based steelmaker is in a tug of war with the Ruias. The committee of creditors for Essar Steel had approved a Rs 42,000-crore bid by ArcelorMittal when the Ruias came back with an offer to fully repay entire debt of more than Rs 54,000 crore. But a provision in the bankruptcy code bars defaulting promoters of insolvent firms from participating in bidding. Jindal suggested that Essar Steel’s case was an exception as the former promoters are repaying in full.
According to Mittal, if rules are not followed, the damage will be far wider than just the Essar Steel case. “India has to be rule based; we must rely on the basic process of law. These tactics are to delay, to frustrate and prevent the right resolution for the company.”
The insolvency code is designed to maximise value and within that framework “we had the best bid, we had a very credible resolution plan, we had a very good plan to improve Essar Steel,” Mittal said.
The State Bank of India, which has the largest exposure to Essar Steel, has put its entire loan on the block even as the insolvency proceedings are on.
“The same banks have a bid from ArcelorMittal, and they're selling their debt at an 18 percent discount to our bid and that’s a lot of wasted money,” Mittal said. India’s state-owned lenders are not rich enough for such a loss, he said.
The delay in the insolvency proceedings means Essar Steel can’t pursue developments, capex plans or give any direction to its employees, he added.
ArcelorMittal plans on starting with safety, health and environment and capex, he said. “We have a lot that we can bring in in terms of capabilities and knowledge in that space and we want to complete the uncompleted capex. Essar Steel still hasn’t achieved its designed capacity so we need to make sure she [Essar Steel] has full output.”
Watch the full conversation here:
Here’s the edited transcript of the conversation:
What sense do you make of the delay in the case?
It is unfortunate. You talked about the case being stretched over 540 days. It is too long. The insolvency process was designed to be completed in 270 days. It’s a shame because everyone is losing money. Creditors are losing Rs 17 crores a day. India is not such a rich country that we can afford our state banks to lose so much of money.
We have acquired a lot of companies across the world. For the first time, we have been sued for acquiring a company. So, these are unique circumstances. The IBC process was designed for value maximisation. That was the basis for the IBC process. But it has to be within the rules of the IBC. Within that framework, we have one. We have the best bid, we have credible resolution plan. We have lot that we can bring in terms of capability and knowledge in that space. We wanted to complete the uncompleted capex. Essar Steel still hasn’t achieved its designed capacity so we need to make sure she’s at full output.
We want to grow the facility. We also want to look at Paradip. We think Paradip is interesting from a greenfield perspective. So, we have very strong and ambitious plans and we hope we can bring our technology to bear with our leading partner in this acquisition - we have Nippon Steel, the largest steel company in Japan and one of the largest steel companies in the world - and together we can make a safe working environment for Essar and its employees.
You are now faced with the promoter family, which is the Ruias, wanting to pay more than what you have put on table in IBC process and pay back all the creditors. How do you react to it?
If you look at same family or reincarnation based on the Supreme Court Numetal case, the first bid according to media reports was Rs 20,000 crores. So, if it wasn’t for us, the country could have lost Rs 22,000 crores because our bid is Rs 42,000 crores. It is very important that IBC process is followed. India is a growing and developing country. If India is not rule based that dimension of country is much greater than the Essar process.
What do you make of the fact that you have the winning bid but might not finally have the asset?
If India is rule based, then there is no chance we will not win. Essar was in insolvency for 540 days. So, why did they (Ruia family) not come before? There were occasions to bid. There were two rounds and finally the Supreme Court said if you want to bid, pay off the other dues. We paid it. We spent a billion dollars, Rs 7,000 crores to Uttam Galva and KSS Petron. That is my message that India has to be rule base. That is why India is respected as a destination for investment. That is the basis for India to grow.
For any business plan, whether they are outside of inside India, you rely on basic process of law. That’s what we followed, and the Supreme Court agreed with us. We put in the winning bid. The Committee of Creditors has agreed with us. All these tactics are to delay, frustrate and to prevent right resolution for this company.
What sense do you make of Sajjan Jindal backing the return of asset to the Ruias?
At the end of the day, every time you acquire a company there are other interested parties. It is not the first time we have seen it. We have seen that in Europe, America, and Brazil. It is not like we are in every acquisition. We have also lost them along the way to our erstwhile competitors. We think that there is room for competition in the country. We have a lot to bring through our capabilities in terms of safety, health, environment product and technology. Jindal steel has always been interested in Essar, perhaps not in the EOI stage but at a time the second round was coming for the bid in April-May last year, they had already thrown their hat in. From my standpoint, it is not a new development. My message is that the process is over, complete and done.
Don’t you think this participation strengthens the Ruias?
That was already there. NuMetal has been disqualified. They have not paid dues to related parties. We have the winning bid. We followed rule-based process.
The State Bank of India, the largest lender to Essar steel, has put all of its loans on sale. Do you think it jeopardizes the process of your takeover?
It emphasises why we need the right resolution and why IBC has to be rule-based. The same banks have bids from Arcelor Mittal and Nippon Steel. And they are selling their debt at 18 percent less capital to our bid. That is a lot of wasted money. This money can be utilised to re-lend in the sector, pump-in liquidity in Indian economy and re-energize the market place. Essar steel is also stuck. They cannot pursue their development, they cannot do capex. They cannot provide a strategic direction to its employees. All of these developments are demonstrating that we need to close this process, move forward and follow a rule-based environment.
Are you not afraid that the people who acquire these loans might play some role in changing the course of this process?
The committee of creditors has decided. They have taken the decision. If you follow the rules,we are the highest value bid.
Your investment in Uttam Galva Steels did not succeed. It wasn’t until this insolvency process mandated you to pay back those dues. Why should bankers and investors treat you differently than they would treat the Ruias?
We were never on the board. ArcelorMittal wrote-off the investment. There was Miglani family which ran the business. Mr. Miglani and his two sons were the management on board. We did not believe that we were promoters of that business. In our accounts, we have written it off. The idea of Uttam Galva was more to supply steel from our greenfield assets, which was Jharkhand and Karnataka, and those assets could not come through. If you look at credit history of ArcelorMittal and the investment grade, that is the same credit rating as India. We issued a bond nine months ago, during the Uttam Galva process, in the Euro market where our implied cost of interest for five years was less than 1 percent. So, to say that Arcelor Mittal does not honor its credit obligations is not factually correct. Uttam Galva was unique. We didn’t feel obligated. We never signed a deal or contract. Our name is literally there. The Supreme Court took a different view. There is a new regulation-- 29A. We honored our commitment. We spent a million dollars, settled all the dues. We settled all the dues of KSS as well because that is what who we are. If there is requirement to pay, we will pay 100 percent of it. Banks are nothing to worry. If you look at our track record globally, we have done a tremendous job of turning around, improving facilities and I hope to bring the same to Essar Steel.