Steel baron Lakshmi Niwas Mittal led ArcelorMittal is set to enter India by later this month or early next month as Supreme Court on November 15 cleared the path for takeover of the bankrupt Essar Steel India Limited by the world's largest Steel firm after a prolonged legal tussle in various courts for over two years.
The apex court while approving the ArcelorMittal resolution plan of ₹42,000 crore for Essar Steel ruled that operational creditors can’t be treated at par with financial creditors, a judgement that sets a precedent for other bankruptcy cases.
Commenting on the judgement an ArcelorMittal’s spokesperson said, “We are very pleased with the judgement that our resolution plan has been approved. We look forward to the closing of the acquisition soon.”
Essar promoters, who made a last minute offer for a one-shot settlement of ₹54,389 crore cash offer to settle dues of all creditors, welcomed ArcelorMittal to India.
“We wish Arcelor Mittal and Nippon Steel the very best on their entry into the Indian market. They are acquiring a world-class facility in a market that has a long runway for growth,” said Essar spokesperson.
For lenders, Essar Steel will bring the largest recovery among the dirty dozen as the banks will recover ₹42,000 crore against the admitted debts of ₹49,473 crore, thereby a recovery of about 85% compared to the average recovery of 53% in other resolution cases.
Mehul Bheda, Partner, Dhruva Advisors said, “The ruling would enable banks to finally recover dues of nearly ₹42,000 crores. Also this will give a fillip to other resolutions as the primacy of the financial creditors has been established.”
“The banks have made an unprecedented recovery of almost 90% in the historic resolution of Essar Steel. This is more than double the recovery made by them in other IBC cases that is on an average about 40% to 50%. The Essar Steel resolutions marks the highest point in the realisation of assets admitted in the first list under the Insolvency and Bankruptcy Code,” a resolution professional told The Hindu.
ArcelorMittal is expected to fund the transaction with one-third equity and two-third debt along with its joint venture partner Nippon Steel Corp (NSC).
After completion of the deal, ArcelorMittal will jointly own and operate ESIL in partnership with Nippon Steel, in line with the joint venture formation agreement signed with the Japanese firm on January 22, 2019.
“ArcelorMittal and NSC expect to finance the joint venture through a combination of partnership equity [one-third] and debt [two-thirds], and ArcelorMittal anticipates that its investment in the joint venture will be equity accounted,” said ArcelorMittal in its earnings release last week.
In February 2017, the RBI directed banks to refer 12 large NPA cases to the NCLT. These accounts together had an outstanding of ₹3.45 lakh crore to the banking system. Of these, the resolution process in respect of seven accounts have been concluded.
