Suddenly Essar Steel “Shareholders” Find Rs54,389 crore to Pay Creditors to Retain Control

The Ruia owned Essar Steel India Ltd (Essar Steel) which was on the brink of changing hands, has claimed that it has submitted a proposal to its Committee of Creditors (CoC) for full settlement of the entire admitted claims of the financial creditors, operational creditors, and workmen and employees of the company, aggregating Rs54,389 crore.

"The plan includes an upfront cash payment of Rs47,507 crore to all creditors, including Rs45,559 crore to the senior secured financial creditors, i.e. 100% recovery," the company said in a release on Thursday without revealing how the promoters and shareholders have suddenly got access to such huge funding.

When asked, Essar Steel has refused to reply on the source of its sudden riches. The question is if the money was so easily available, why was the company a defaulter?

Prashant Ruia, Director, Essar, said, "Essar Steel got into difficulty because of external factors. In fact, even after the onset of the insolvency resolution process, the shareholders of Essar Steel had made offers to settle the debt of the company, but the lenders did not accept those offers. We believe our current proposal will provide 100% recovery to secured creditors and lenders, and maximum recovery for unsecured creditors."

While the resolution plan currently under the CoC's consideration takes care of only the secured creditors (i.e. the banks), by offering this settlement, Essar Steel says its shareholders are ready to pay up the entire dues that will lead to not only maximum recovery for the lenders, but also for all other classes of creditors, thus taking the Company out of the corporate insolvency resolution process under Section 12A of the IBC, which was introduced in June 2018 by way of an amendment.

"If the CoC were to accept the resolution plan currently under consideration, it will have to settle for a sizeable haircut. Moreover, the offer does not provide for meaningful payment to operational and other unsecured creditors," it added.

Earlier in September, the National Company Law Appellate Tribunal (NCLAT) had ruled that ArcelorMittal must pay its dues to enable consideration of its bid for Essar Steel along with resolution plans of other contenders, Numetal and Vedanta Resources.

The revised bid by the world's largest steelmaker is believed to be Rs42,000 crore compared with Rs37,000-crore bid submitted in the second round of bidding by Numetal, a consortium led by Russia's VTB Bank.

The commitment by ArcelorMittal to pay the outstanding dues of Rs7,000 crore on Uttam Galva and KSS Petron is learnt to be separate from its bid of Rs42,000 crore. ArcelorMittal was asked to clear its dues of about Rs7,000 crore related to Uttam Galva and KSS Petron, of which it was a promoter when these turned non-performing assets (NPA).

While ArcelorMittal got conditional approval from the NCLAT, Numetal's bid filed in the second round in March this year was found eligible as by then it had restructured its shareholding composition by removing the stake of Essar Steel promoter's son.

The first bid of both Numetal and ArcelorMittal were rejected by the CoC, the lenders of Essar Steel, as they violated Section 29A of the IBC, which disqualifies a promoter of NPA from submitting a resolution plan.