Insolvency process: ArcelorMittal bid for Essar Steel ineligible, says VTB

VTB Capital says it will accommodate interests of all stakeholders

ArcelorMittal is “spoiling” the bidding game of Essar Steel. Despite its lobbying with the Indian government, its “ineligible bid” should not be cleared as it does not meet the eligibility criteria as per the current Insolvency and Bankruptcy Code (IBC), said VTB Capital, one of the two bidders for Essar Steel. ArcelorMittal is the other bidder. 

“We have taken legal opinion from three different law firms and they are all of the opinion that ArcelorMittal and its promoters’ investments in two non-performing assets (NPAs) in India will debar it from bidding. Hence, we are confident that it is out of the game, but has made the offer just to spoil the game for others,” said Makram Abboud, vice-chairman, international of VTB Capital, which is owned 60 per cent by the Government of Russia. ArcelorMittal, however, in the past has said it is eligible to bid for Essar Steel. The results of both bids are expected this week. VTB Capital and its partner, Tyazhpromexport, an engineering company, own 75 per cent stake in Numetal Mauritius, which has made a bid for Essar Steel.

 

“The current IBC norms are very clear that defaulting companies and their promoters are not eligible to bid. Yet, ArcelorMittal bid for Essar Steel,” said Abboud. A Singapore-based trust with Rewant Ruia as its beneficiary owns 25 per cent stake in Numetal. Reports say Ruia as beneficiary of the trust could also make Numetal ineligible, as Ruia-promoted Essar Steel defaulted on bank loans of Rs 440 billion.

Abboud said Numetal’s equity structure meets the current IBC norms and is open to discussions with the resolution professional. 
 

VTB Capital also indicated that it is open to raise its bid amount for Essar Steel if desired by the resolution professionals/lenders. “We are very flexible in our approach and are willing to accommodate the interests of all stakeholders involved with Essar Steel,” said Abboud. 

“The Russian government owns 60 per cent stake in our bank. In the past, the Russian government (erstwhile Soviet Union) helped India to set up all the steel plans of SAIL (Steel Authority of India). We have great experience in running steel plants and turning them around when the industry goes through a downcycle,” said Abboud. VTB Capital, he said, has done over $13 billion of transactions in India. 

VTB Capital is the investment banking arm of VTB Bank, one of the top universal banks in Russia. Its investment activity outside Russia is part of the broader plan to increase Russia’s investment in fast-growing emerging markets such as India. 

VTB Capital has been interested in acquiring Essar Steel for the last two years, done due diligence, and had even given a proposal to buy equity earlier to banks. “We have studied Essar Steel very well and we are ready to invest to expand its capacity,” said Abboud. “We did not bid for other stressed steel assets, as we think there was very less time to conduct due diligence,” he added. 

On reports that the bids of both Numetal and ArcelorMittal have been rejected, Abboud said the resolution professional had made it very clear that no such decision was taken by the legal advisor. “We are awaiting communication from the resolution professional and will then take action,” he said. 
 

The controversy over ArcelorMittal’s bid ignited as the group held a 29.05 per cent stake in Uttam Galva Steels as a co-promoter along with the Miglani family, which is now an NPA. However, on February 7, just before bidding for Essar Steel, ArcelorMittal transferred its entire shareholding to the Miglani family at Rs 1. Consequently, the co-promotion agreement with the Miglani family dated September 4, 2009, stood terminated, it had said. 

As opinion received by Numetal, ArcelorMittal has been promoter of a corporate debtor (Uttam Galva) for over one year prior to commencement of the resolution process of Essar Steel. The only way the person who is a promoter of a corporate debtor becomes eligible is if he makes payment of all overdue amounts with interest. 

Apart from Uttam Galva, L N Mittal, promoter of ArcelorMittal, also had a personal holding of 33 per cent in KazStroyService (KSS) of Kazakhstan, an oil infrastructure provider company, which, in turn, had a 100 per cent stake in KSS Petron, which became an NPA in 2015. Despite several reminders from State Bank of India to Mittal, KSS loans were not paid and the company became an NPA. 
 

However, Mittal again sold his shares in KSS Petron just before submission of Essar Steel bid. Some of the lenders had raised questions about the promoter status at the time of the company turning into an NPA and not sale of shares.

Earlier, a senior source in Numetal had indicated that it will move the courts if its bid is incorrectly rejected.