Anil Agarwal's Vedanta, VTB Bank of Russia not out of Essar Steel race

The race to acquire Essar Steel may not be over yet as Anil Agarwal’s Vedanta and VTB Bank of Russia have said they would make better offers as compared with ArcelorMittal’s if they get approval from the Supreme Court.

Last week, the Committee of Creditors of Essar Steel informed ArcelorMittal that it emerged as the highest bidder after it offered Rs 420 billion to the lenders against Rs 450 billion of dues of Essar Steel. 

ArcelorMittal has already paid an additional Rs 75 billion to banks to become eligible to bid for Essar Steel. This was after the Supreme Court (SC) asked it to repay dues of two defaulting companies — Uttam Galva and KSS Petron, in which ArcelorMittal and its promoter held a stake.

The CoC is expected to vote on ArcelorMittal and Vedanta's proposal next week and at present the outcome seems to be a foregone conclusion due to Mittal’s aggressive offer. But, the race is not over yet as the two rival bidders — Vedanta and VTB Bank — can still better their offers and upset ArcelorMittal’s plans. “The action will shift to the National Company Law Tribunal (NCLT) once the CoC makes its recommendation to the court,” said a Mumbai lawyer.

The SC in its order early this month had said any objection on the bidders can be raised at the NCLT. In the case of Bhushan Power, the CoC decided to take an increased bid from JSW Steel even after Tata Steel was declared the highest bidder in the initial stage. 

“If VTB Bank gets the SC approval to make a solo bid by next week, then the offer for Essar Steel will go above Rs 450 billion," said a person close to the development. VTB Bank had moved an application at the SC seeking permission to bid solo after the apex court's decision on Numetal and ArcelorMittal.

Despite the litigation, lenders are happy that unlike other insolvency cases, they will end up recovering almost 100 per cent of Essar Steel debt this quarter. 

In most of the cases, lenders have taken an average haircut of 50 per cent on their debt. Bankers said whichever party wins the race, they will receive their entire money in the December quarter. This is good news for State Bank of India, Edelweiss Asset Reconstruction Company and IDBI Bank which are top creditors of Essar Steel.

Essar Steel was sent for debt resolution under the Insolvency and Bankruptcy Code (IBC) after the company failed to repay its debt as on March 2017. The company had blamed cheap Chinese steel, lack of gas supply and a terror attack on its iron slurry pipeline that disrupted its raw material supply and resulted in its bad financial condition.