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ArcelorMittal needs lenders' nod on Uttam Galva Steels shares, says SBI

Sale of shares by Mittal violates non-disposal agreement, says the bank

Bs_logoArcelorMittal held a 29.05 per cent stake in Uttam Galva Steels
ArcelorMittal held a 29.05 per cent stake in Uttam Galva Steels
Dev Chatterjee Mumbai
Last Updated : Sep 18 2018 | 3:02 AM IST
State Bank of India (SBI), the lead banker of Uttam Galva Steels, has informed ArcelorMittal - the co-promoter of the bankrupt company - that its transfer of shares in February this year to the company’s co-promoter, the Miglanis, violated the non-disposal agreement and hence, the shares transferred to the Miglanis will require lenders’ clearance.

SBI has also cautioned the L N Mittal-owned company that the bankruptcy proceedings against Uttam Galva will continue and it cannot be tied to Essar Steel’s debt resolution.

In February this year, ArcelorMittal Netherlands BV sold its 29 per cent stake in Uttam Galva to Miglanis for Rs 1 in order to become eligible to participate in the bidding process of Essar Steel. Uttam Galva was declared a non-performing asset (NPA) in September 2016 after it defaulted on its debt obligations worth Rs 60 billion. SBI has initiated bankruptcy proceedings against the company in the National Company Law Tribunal (NCLT), Mumbai, last year, where the proceedings are currently pending.

In a communication to ArcelorMittal in April this year, SBI had said under the credit facility agreement, the sponsors of Uttam Galva, including ArcelorMittal, duly executed a non-disposal agreement in 2011, which would not let them sell shares unless cleared by lenders. The communication to ArcelorMittal is reviewed by this newspaper.

“Pursuant to the terms of the non-disposal agreement, sponsors of Uttam Galva shall not create any security interest on the NDU (non-disposal undertaking) shares and also not transfer, sell, or dispose of the NDU shares. However, with the permission of the facility agent, sponsors are permitted to transfer the NDU shares among themselves, provided no event of default has occurred and sponsors jointly hold 51 per cent stake in the share capital of Uttam Galva and continue to retain control over the company. Please note that the facility agent is under no obligation to transfer shares from one sponsor to other sponsor – if an event of default has occurred,” the SBI wrote to ArcelorMittal, citing its loan agreement of 2011.

“As you are aware, Uttam Galva has been in breach of its payment obligations as well as other conditions as set out in the credit facility agreement. As a result, Uttam Galva account has been classified as an NPA in accordance with the Reserve Bank of India guidelines. We have recalled the entire financial assistance granted by us to Uttam Galva and have moved the NCLT, Mumbai, under the Insolvency and Bankruptcy Code (IBC), 2016, and proceedings are currently pending before the NCLT, Mumbai,” SBI said.

When contacted, an ArcelorMittal spokesperson said: “ArcelorMittal never considered itself a promoter of these companies; at no point did we have any management involvement or board representation at Uttam Galva or KSS Petron.” He added that ArcelorMittal and, in the case of KSS Petron, the Mittal family, exited from these companies by following all due processes, including seeking, and being granted, declassification as a shareholder from the Indian stock exchanges. 

“Despite our firm belief that ArcelorMittal has always been an eligible bidder, we have made a clear and considerable commitment to pay the entire amount due to the financial creditors of Uttam Galva and KSS Petron, which represents unprecedented value to all concerned creditors. This is a commitment that we have reinforced in the past week, both in the revised offer submitted to the committee of creditors for Essar Steel and in a stock exchange filing by ArcelorMittal confirming the submission of our revised bid,” the spokesperson said. 

ArcelorMittal had told SBI that it had deposited $48 million (around Rs 3.12 billion) in an account standing in ArcelorMittal’s name in SBI, London, against Uttam Galva’s dues. SBI asked ArcelorMittal on how it could access funds deposited in its own account. “Please let us know in what manner lenders can accept the amounts deposited in an offshore account maintained by you towards the dues of Uttam Galva under the credit facility agreement – if at all lenders choose to accept. Further, without prejudice to anything stated herein, the acceptance of the deposit will be subject to regulatory consents, which ought to be procured by Uttam Galva and you,” the SBI said.

Further, SBI added that depositing the amount in the offshore account is its independent choice and shall not have any bearing with the plan submitted by the Mittal company for Essar Steel resolution. The bank also cautioned that such deposit will also not have any bearing on the insolvency proceedings initiated by the lenders against Uttam Galva under the IBC, 2016.

In its arguments before the Supreme Court (SC), ArcelorMittal has said that it will repay the dues of Uttam Galva and KSS Petron – another defaulting company where its promoter held 33 per cent stake – only if it was declared the winner for Essar Steel. The National Company Law Appellate Tribunal (NCLAT), however, has held on September 7 that ArcelorMittal is ineligible to bid for Essar Steel till it first pays the dues of the two defaulting companies where it was the co-promoter.

The NCLAT gave three days’ time to ArcelorMittal but it moved the SC against the NCLAT verdict and raised its offer to Rs 420 billion for Essar Steel as against Rs 370 billion offered by Numetal, a company backed by VTB Bank of Russia.
THE STORY SO FAR

July 2011: Uttam Galva promoters, ArcelorMittal sign credit facility with SBI

Sept 2016: Uttam Galva declared NPA by lenders

February 2018: ArcelorMittal sells 29% stake in Uttam Galva to Miglanis for Rs 1.  ArcelorMittal makes a bid for Essar Steel

April 2018: Uttam Galva bankruptcy proceedings independent of Essar Steel debt resolution: lenders

Sept 2018: NCLAT asks ArcelorMittal to first pay Uttam Galva/KSS Petron dues and then bid for Essar Steel; ArcelorMittal moves SC 
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