War of words between the two bidders for Essar Steel

Two weeks ago, media reports had hinted that the tug-of-war between steel king LN Mittal and the Ruias over Essar Steel may end up seeing no winner. That's because the legal and financial consultants advising the interim resolution professional (IRP) overseeing sale had reportedly recommended the rejection of both bids as being ineligible. Mittal's company ArcelorMittal and Russia's VTB Capital-backed Numetal Mauritius, the Ruia family's last hope, have been waging a war of words ever since, along with churning out press releases highlighting their respective credentials and outlining their grand plans for Essar Steel. These two players are the only ones to have bid for the beleaguered company.

Yesterday, VTB Capital's Vice Chairman Makram Abboud took a pot-shot at its rival bidder in an interview to Business Standard. "We have taken legal opinion from three different law firms and they are all of the opinion that ArcelorMittal and its promoters' investments in two non-performing assets (NPAs) in India will debar it from bidding. Hence, we are confident that it is out of the game, but has made the offer just to spoil the game for others," he had said. VTB has a majority (40 per cent) interest in Numetal, a special purpose vehicle, followed by Russia's Tyazprom Export, a construction engineering and management consulting company.

Today, ArcelorMittal hit back saying "We are confident about the integrity of the process, which will be adjudicated by the Resolution Professional." The company statement added, "We continue to believe our bid is eligible and that as the world's leading steel company in partnership with Nippon Steel and Sumitomo Metals, we have unrivalled industry expertise and a demonstrable track record that is very relevant for Essar Steel India Limited." Sources close to ArcelorMittal also told the daily that Numetal was not in a position to judge ArcelorMittal's eligibility.

Last year's amendment to the Insolvency and Bankruptcy Code (IBC) prevents promoters of defaulting companies from bidding for stressed assets until they clear their dues. ArcelorMittal's bid - submitted together with Nippon Steel & Sumitomo Metal Corp - was recommended to be rejected on the grounds that it previously held stakes in delinquent companies. To avoid any last-minute controversy, earlier this month, ArcelorMittal transferred its little over 29 per cent stake in Uttam Galva to co-promoter Sainath Trading Company, for a mere Re 1 per share. Similarly, Mittal sold all his shares in KSS Petron, another NPA, just ahead of placing his bid for Essar Steel.

But the recently-inserted section 29A(c) in the IBC clearly states that "A person shall not be eligible to submit a resolution plan, if such person" or any others acting in concert with him/her, "has an account, or an account of a corporate debtor under the management or control of such person... classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India... and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor". ArcelorMittal cashed out of its investment in Uttam Galva less than a month ago.

The issue with Numetal is the 25 per cent share owned by Rewant Ruia, the son of Essar Steel founder Ravi Ruia. Sources close to Numetal say that since the scion is neither a promoter nor will he have control or management rights, his involvement ought to be of no relevance with regard to the bid's eligibility. However, section 29A(j) of the Act clearly rules out any applicant who "has a connected person" considered not eligible to bid. "For the purposes of this clause, the expression 'connected person' means (i) any person who is the promoter or in the management or control of the resolution applicant; or (ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses," it adds. In response, Abboud told the media that Numetal's other shareholders would be willing to buy out Ruia's stake should push comes to a shove.

We will know soon enough, in any case. The resolution professional and the committee of lenders are expected to decide on the bids today, or shortly thereafter.

With PTI inputs