Lenders to Essar Steel Ltd. today issued directions to Numetal Mauritius and ArcelorMittal India, enabling them to clear dues and become eligible to bid for the asset under the insolvency process.
Both bidders have seven days to clear any overdues they may have with lenders to become eligible to bid for Essar Steel, according to two people with direct knowledge of the matter. The lenders decided to give both bidders another chance after a 24-hour voting session which started on Monday, the people said.
The bidders will have to get ‘no dues’ certificates from all of their respective lenders and submit in writing that they do not have any pending liabilities to be considered as eligible bidders for Essar Steel. An ‘overdue’ in the context of the Insolvency and Bankruptcy Code is any amount that was due to lenders on a certain date before the bids were submitted and penal interest, if any.
In an emailed statement, Numetal said it is eligible for bids as neither the company nor its shareholders have any loan dues in India. “Aurora, which had minority shareholder interest with 25 percent equity in Numetal, neither had management role nor any right to directorship in the company. Neither Aurora nor its beneficiary has any loan irregularities with Indian lenders and banks.” Numetal other shareholders have already bought out Aurora’s shareholding in the company, the statement added.
ArcelorMittal did not respond to emailed queries.
Both bidders had earlier been deemed ineligible by the committee of creditors owing to violations under Section 29(A) of the Insolvency and Bankruptcy Code.
In ArcelorMittal’s case, the National Company Law Tribunal had found that the company was liable—as a promoter of KSS Petron and Uttam Galva Steels Ltd.—to repay dues to the lenders of both companies. In Numetal’s case, Essar Group co-founder Ravi Ruia, had issued guarantees to banks in exchange for loans availed by other group companies, which needs to be cleared, for it to become eligible, two of the three people quoted above have confirmed. Ruia’s son was a beneficiary of Aurora Trust which held 25 percent equity in Numetal Mauritius when the first bid was submitted.
Lenders, however, did not allow the Mauritius-based Numetal’s main shareholder VTB Bank to buy out Aurora Trust’s stake to sever the relationship with the Ruia family. That’s because any change in the ownership structure of a bidder will require the approval of the lenders panel as well as the resolution professional, the people quoted above said.
The committee of creditors was itself forced to consider this option after the Ahmedabad-bench of the NCLT directed it to do so. The NCLT in its order last month noted that under Section 30(4) of the Insolvency and Bankruptcy Code, any bidder deemed ineligible due to non-repayment of loans must be given a chance to repay their dues and become eligible.
The order was passed after both bidders challenged the committee's decision of deeming them ineligible to bid for Essar Steel in March. Lenders followed the resolution professional's recommendations in the matter, where both bidders were found to be in violation of Section 29(A) of the Insolvency and Bankruptcy Code on many counts, including being promoters of companies that were tagged as non-performing assets for over 12 months, having pending regulatory orders and criminal proceedings. The lenders themselves did not open the bids submitted by Numetal and ArcelorMittal to determine eligibility, which the NCLT noted as a problem.
After the NCLT passed its order, the creditors opened both bids and found that ArcelorMittal’s bid was higher than that of Numetal.
The India arm of the Luxembourg-based steel company had proposed 30-35 percent haircut for the financial creditors of Essar Steel, as compared with a 60-65 percent haircut proposed by Numetal, BloombergQuint reported earlier.
It is not clear as to whether Numetal will be allowed to revise its offer after it clears all pending dues to be eligible to bid.
Meanwhile, both Numetal and ArcelorMittal have independently approached the National Company Law Appellate Tribunal to challenge the orders passed at the NCLT and question the other bidder's eligibility in the case. Both pleas will be heard on May 17. The decisions taken by the lenders and the directions passed by them will be subject to the NCLAT order in the matter.
(Updates with Numetal statement.)