Essar lenders to meet ArcelorMittal, Numetal on May 2 to discuss offers

Both companies to rectify their initial offers

The Indian lenders will have several meetings with the representatives of ArcelorMittal and Numetal on Wednesday to discuss the offers made by both companies for Essar Steel.

While ArcelorMittal has made a conditional offer to repay the debt of Uttam Galva Steels to become eligible, Numetal has offered to remove the trust where Rewant Ruia, son of Essar Steel's co-founder, is the beneficiary.

In a letter to lenders last week, ArcelorMittal had offered to repay Rs 530 billion of Uttam Galva's debt  if it is declared a winner for Essar Steel, which runs a 10-million-tonne per annum steel plant in Hazira, Gujarat. 

The lenders plan to discuss ArcelorMittal's conditional offer in detail. According to sources, lenders may not agree to Mittal's offer because they are expecting aggressive bids from Numetal, Vedanta, and JSW Steel in the next round of bidding. 

ArcelorMittal held 29 per cent in Uttam Galva Steels and its Chairman L N Mittal personally held 33 per cent in KazStroyService (KSS) of Kazakhstan, which, in turn, held 100 per cent in the Indian subsidiary, KSS Petron, another bank defaulter. Just before the bids for Essar Steel were to be submitted in early February, ArcelorMittal sold its stake in both Uttam Galva and KSS to become eligible. But its bid did not find favour with the banks' lawyers and the National Company Law Tribunal (NCLT), Ahmedabad, which asked ArcelorMittal to pay debts of defaulting companies before making an offer. 

Banks have given a week's time to both ArcelorMittal and KSS Petron to rectify their first round offers. Lenders had rejected the first round bids by both ArcelorMittal and Numetal Mauritius in February and both had moved the NCLT.

In the meanwhile, banks called a second round of bids, in which JSW Steel tied up with Numetal, while Vedanta made a surprise entry into the race.

When contacted, an ArcelorMittal spokesperson said: “ArcelorMittal was not the defaulting promoter of either Uttam Galva or KSS. As we have repeatedly explained, the company, or in the case of KSS Mittal Investments, held a shareholding in these companies, but had no involvement whatsoever in the management of the company. We have always believed and continue to believe that our original offer is eligible and we look forward to having the opportunity to discuss this offer in more detail with the committee of creditors (CoC) tomorrow (Friday).”

An ArcelorMittal source said it was premature to say that the lenders would reject any offer before the meeting had even taken place. He added that the company had made a strong and competitive bid that offers real value to the stakeholders. He said, “The clear decision of the judges following the NCLT hearing was that it was premature to call for second bids and the CoC should have the opportunity to review the original bids. The process states that a preferred bidder should be selected for negotiation. The situation is complicated by the fact that new bidders tried to enter the race after having decided not to participate initially, but really that is not a reason to not follow the process.”

According to a source close to the development, the ArcelorMittal offer to creditors does not include payment of KSS Petron’s default. A banking source said by giving a conditional offer, ArcelorMittal wants to make sure that once it pays the debt of Uttam Galva, it wins the race of Essar Steel. “Section 29A of the Insolvency and Bankruptcy Code was very clear on the cure for defaulting promoters. They have to repay bank loans just to become eligible to bid and not to win the company even when there are three cash-rich suitors waiting with better offers,” said a banker.

Anil Agarwal-owned Vedanta has made an offer to banks that it was willing to better the offers made by any other bidder. As Vedanta and JSW Steel are already declared the highest bidders for Electrosteel Steels and Monnet Ispat, respectively, banks are expected to seek bids from the two companies as there would be less legal complication.

ArcelorMittal and Numetal also face a second hurdle as a forensic audit report by New York-based corporate investigations and risk consulting firm Kroll Inc found both bids ineligible as they face several regulatory cases in various jurisdictions. The Kroll Report has been taken on record by the lenders and it would be taken up for further discussion in the CoC meeting. Kroll had examined the operations of both companies across the world and in over 80 jurisdictions. Some of the lenders are also of the opinion that both companies should be allowed to bid in the next round, so that there is more competition.

The lenders have also asked their lawyer Shardul Amarchand Mangaldas to give them options in the next meeting, taking into account the Kroll Report. A source said the lenders would decide internally and come prepared with options in the next meeting.