Three-way race for Essar Steel: ArcelorMittal, Numetal-JSW, Vedanta in fray

Essar Steel, put up for bidding for the second time, saw companies owned by metal sector billionaires taking part on Monday. This time, lenders expect the valuation to cross the $6 billion mark and none or minimal haircut, with Anil Agarwal’s Vedanta, L N Mittal’s ArcelorMittal, and VTB Bank-owned Numetal, which tied up with Sajjan Jindal’s JSW Steel, making aggressive bids.

The bids, however, are subject to the decision of the Ahmedabad Bench of the National Company Law Tribunal (NCLT) on suits filed by Numetal and ArcelorMittal against their first round bid rejections. The Bench will hear their pleas on Wednesday. The lenders will open financial bids after the NCLT order. Lenders, meanwhile, opened the second round of bids for only those firms that submitted expressions of interest in the first round. A source said JSW Steel had bought the 25 per cent stake of Numetal held by the trust in which Rewant Ruia, son of Essar Steel promoter Ravi Ruia, was a beneficiary. It was due to this equity presence of the Ruias in Numetal that the firm’s first offer was rejected.

With JSW Steel joining Russia’s VTB Bank, Jindal is back in the fray for stressed assets after losing Bhushan Steel and Bhushan Power to Tata Steel. To date, JSW has won the race for Monnet Ispat, for which it was the lone bidder. “JSW Steel in the capacity of an investor joined Numetal in submitting a binding bid for Essar Steel, which is under the corporate insolvency resolution process,” JSW said on Monday.

Apart from Jindal, who last week hinted at Mittal’s bid for Essar and protested against giving an opportunity to promoters of defaulting firms, Vedanta’s entry has taken the industry by surprise.

“We have put a lucrative bid for Essar Steel and we have the best financial metrics like debt equity ratio to take over the project,” Agarwal said on Monday. Vedanta had earlier said it was not interested in Essar Steel. Last week, Vedanta’s takeover bid for Electrosteel Steels was cleared.

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The battle for Essar Steel will also see how courts interpret Section 29A of the Insolvency and Bankruptcy Code, which bars promoters of defaulting firms from bidding for stressed assets.

ArcelorMittal said on Monday the company and Nippon Steel & Sumitomo Metal Corporation had submitted an offer in the re-bidding process.

Mittal, chairman and CEO of ArcelorMittal, said: “We are confident we are eligible; we are confident we have the strongest track record; and we are confident we have made a strong and competitive offer.”

ArcelorMittal’s first offer had divided the legal community in the country. Cyril Amarchand Mangaldas and senior counsel Darius Khambata had differed on the eligibility of the company’s bid. Cyril Amarchand had said ArcelorMittal must first pay all dues of Uttam Galva Steels and KSS Petron to become eligible. Khambata had said payment of dues to banks was not required as long as the shares it held in these companies were sold.

Both KSS Petron and Uttam Galva Steels owe Rs 60 billion to banks and are referred to the National Company Law Tribunal for debt resolution. ArcelorMittal held 29 per cent stake in Uttam Galva Steels and Mittal personally held 33 per cent stake in KazStroy Services (KSS) of Kazakhstan, which in turn held 100 per cent stake in KSS Petron. Mittal sold stakes in both the firms in early February to become eligible for the bidding.

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On 24 March, ArcelorMittal got itself declassified as promoter of Uttam Galva Steels. This declassification, however, has been challenged by the minority shareholders of Uttam Galva.

In the case of KSS Petron, Mittal, through holding companies, exercised negative control. According to Cyril Amarchand, negative control over an entity constituted control for the purposes of testing under Section 29A(c). Hence, KSS Petron was also a reason why AM India was disqualified. According to Khambata, negative control did not constitute ‘control’ for the purposes of Section 29A(c) and, accordingly, KSS Petron was not grounds for disqualifying AM India.

On account of different views, Cyril Amarchand had recommended the resolution professional to rely on Khambata’s advice. The resolution professional stated that as on the resolution plan submission date in February, AM Netherlands (a connected person of AM India), continued to be classified as a promoter of Uttam Galva and had not completed regulatory compliances relating to declassification as a promoter of Uttam Galva and, accordingly, its first resolution plan was rejected.

HIGH STAKES

• JSW is back in the race for stressed assets by partnering Russia’s VTB Bank to bid via Numetal
• If Vedanta wins bid, this will be the second steel plant the company will get at a discount, after Electrosteel
• ArcelorMittal will get an entry in the Indian steel sector if its offer clears the legal eligibility test
• VTB Bank will get exposure in a 10 mtpa steel plant in India, along with JSW Steel, which is a strong player in India