BQ: NCLAT’s ArcelorMittal-Essar Steel Order Doesn’t Apply To Ruchi Soya, Say Lenders

23 July 2019: The National Company Law Appellate Tribunal’s order in the ArcelorMittal-Essar Steel case is not applicable to Ruchi Soya Industries Ltd. as it is already under trial, lenders to the firm said on Tuesday.

The counsel for the committee of creditors of Ruchi Soya said the judgment will not apply to any matter, which are under trial or going through the insolvency process, hence is also not applicable to the Ruchi Soya case.

On July 9, the Mumbai bench of the National Company Law Tribunal had directed all stakeholders, including the resolution professional and the lenders, of Ruchi Soya to find out whether NCLAT’s order in the ArcelorMittal-Essar Steel case would have any impact on the Ruchi Soya insolvency case.

The NCLAT has ordered almost equal treatment of operational and financial creditors of Essar Steel in payout of ArcelorMittal’s Rs 42,000 crore offer for the steelmaker.

The NCLT observed that the NCLAT order has changed the entire outcome for all stakeholders and is like a formula with clear-cut directions on the distribution of the proceeds should be carried out. Reserving an order on Ruchi Soya, the tribunal said the resolution plan is required to be further discussed.

On Monday, however, the Supreme Court put on hold Essar Steel’s sale to ArcelorMittal as it agreed to hear an appeal filed by financial lenders against the NCLAT order, saying it would like to settle the issue “once and for all”.

Meanwhile, the counsel of Patanjali Ayurved Ltd. said that it stands by its resolution plan for Ruchi Soya.

In December 2017, NCLT referred Ruchi Soya for insolvency on applications moved by Standard Chartered Bank and DBS Bank and appointed Shailendra Ajmera as the resolution professional.

Patanjali, who initially lost out to Adani Wilmar in the race to acquire Ruchi Soya, hiked its bid value by around Rs 140 crore to Rs 4,350 crore, including a capital infusion of Rs 1,700 crore.

Ruchi Soya owes over Rs 9,345 crore to its financial creditors.

The BloombergQuint reported

BS: Essar Steel: NCLAT approves ArcelorMittal’s bid with modifications

4 July 2019: The National Company Law Appellate Tribunal (NCLAT) on Thursday approved Lakshmi Mittal-led ArcelorMittal’s plan for Essar Steel India Limited. The appellate tribunal had on May 21 heard the contentions of all the parties and reserved its judgment in the case. The distribution of amount for all operational and financial creditors will be reflected in ArcelorMittal’s resolution plan. The Committee of Creditors (CoC) will have no role in this distribution.

The NCLAT allowed the claims of Dakshin Gujarat, Gujarat Energy, BPCL, IOCL, GAIL, ONGC and NTPC.

ArcelorMittal had told NCLAT that it would pay Rs 42,000 crore, including a minimum of guarantee of Rs 2,500 crore as working capital, for acquiring debt-laden Essar Steel under the insolvency process.

In April, the Supreme Court had halted distribution of funds among operational and financial creditors from the Luxembourg-based firm’s Rs 42,000-crore resolution plan for Essar Steel India. This was after the lenders to Essar Steel had challenged a direction of the NCLAT asking the resolution professional (RP) to call a fresh meeting of the committee to consider the redistribution of funds among the creditors.

ArcelorMittal’s Rs 42,000 crore resolution plan for Essar Steel was approved by the NCLT on March 8. In its judgment, the NCLT had observed that though it did not want to change the resolution plan approved by the CoC, it would suggest the lender to reconsider distribution of dues and give 15 per cent of the total offer to operational creditors.

The Lakshmi Mittal-led company has been fighting for the control of Essar Steel for well over 600 days now. The case has seen many twists and turns, including a settlement plan of Rs 54,389 crore made by the promoters of Essar Steel, who offered to pay off the entire debt. The plan was, however, rejected by the NCLT.

ArcelorMittal’s bid, on the other hand, includes an upfront payment of Rs 42,000 crore towards the debt resolution of Essar Steel, with an additional Rs 8,000 crore of capital infusion into the company to support operational improvement, increase production levels, and deliver enhanced levels of profitability. In October 2018, the CoC of Essar Steel had voted to approve ArcelorMittal’s plan and a letter of intent was issued.

The Business Standard reported

BS: SC restrains Arcelor Mittal from paying for Essar Steel

12 April 2019: The Supreme Court on Friday restrained steel manufacturing giant Arcelor Mittal from acquiring Essar Steel India and ordered status quo on the March 8 order of the National Company Law Tribunal (NCLT) approving Arcelor’s bid for Essar.

The Arcelor’s acquisition of Essar would have allowed Arcelor owner Lakshmi Mittal to begin its operations in the Indian steel market.

The tribunal had given its approval to the resolution plan offered by Arcelor Mittal for the acquisition of Essar Steel.

The Committee of Creditors (CoC), however, moved the apex court opposing higher payment to Standard Chartered Bank (SCB).

After the Friday’s order, Arcelor Mittal cannot make payments to the lenders to buy Essar Steel.

A bench headed by Justice Rohinton F. Nariman directed the NCLT to expeditiously decide on appeals in the case.

As per the tribunal order, SCB was allotted only 1.7 per cent of its total admitted claims, while the financial creditors were recovering their claims close to 92 per cent.

The NCLT had directed that the distribution should be done on a pro-rata basis, and SCB should be awarded its share accordingly.

The apex court order is bound to delay Mittal’s plan to buy the steel mill, which can produce 10 million metric tonne annually.

Post the acquisition, Arcelor will become the fourth-biggest player in the country. It plans to invest trillions of rupees in its infrastructure.

The NCLT had approved Arcelor’s and Nippon Steel Corp offer to pay $6 billion to lenders and then invest about another $1.1 billion in the company.

The CoC opposed the NCLT decision asking a panel of lenders to consider higher payment to SCB, and contested the Tribunal’s view that a substantial part of its Rs 35 billion ($505 million) dues would remain unpaid under Arcelor’s plan. The CoC claimed that the distribution of money among the lender as per the plan is unfair.

The panel of lenders and the State Bank of India challenged the tribunal’s direction in the top court.


The Business Standard reported

BS: Essar Steel clocks in highest ever production at 6.8 million tonnes

9 April 2019: Essar Steel, which is on the cusp of a resolution under the Insolvency and Bankruptcy Code (IBC), has recorded its best ever production at 6.8 million tonnes, an improvement of 10 per cent over the previous year and around 24 per cent in 2016-17.

At the end of March 2019, Essar’s production stood at 6.78 million tonnes compared to 6.18 million tonnes in 2017-18 and 5.47 million tonnes in 2016-17. 

The corporate insolvency resolution process (CIRP) for Essar, one of the largest Reserve Bank of India- mandated resolutions, started in August 2017. J Mehra, who stepped down as the chief executive officer of Essar Steel at the end of March, said that the steel production and the production of downstream units were at an all-time high. 

Essar recorded an 80 per cent capacity utilisation in downstream units and a substantial increase in production of value added products comprising galvanising, colour coated products and pipes. Mehra also appreciated the performance of the pellet facility which recorded a production of over 10 million tonnes and operated at rated capacity in March 2019.

Resolution professional, Satish Kumar Gupta, who is now chairman of the monitoring committee that has taken charge of Essar, confirmed the production numbers and said, the performance of Essar was possible on account of support from the financial creditors and the management. “It also establishes the plant capability,” he said.

A monitoring committee with representatives from lenders and ArcelorMittal as per an order from the National Company Law Appellate Tribunal (NCLAT) has taken charge of Essar Steel. Resolution professional, Satish Kumar Gupta, is the chairman of the monitoring committee. 

Sources said, Essar’s performance was despite withdrawal of funding lines by MSTC to the tune of Rs 700 crore. MSTC used to provide funding lines for import.

At the time of stepping down, Mehra was satisfied with the performance of the company, which provides a strong platform for further growth.

Essar has been selling more or less what it produced as it had not received any additional funding support. Favourable market conditions, therefore, helped the company.

Senior vice president ICRA, Jayanta Roy, pointed out that prices of hot rolled coil (HRC)  had touched a low of about Rs 28,000 a tonne at the end of FY16 and then moved up to around Rs 46,000 in Q1FY19. After dipping in Q3 to Rs 38,000 it is now hovering at around Rs 42,000 a tonne.

Essar Steel has a steel making capacity of close to 10 million tonnes which is supported by a 20 million tonne pellet-making capability. However, sources pointed out that the capacity could not be achieved as it required additional funding.

ArcelorMittal’s resolution plan for Essar Steel includes a capital expenditure plan of Rs 18,697 crore to take the finished steel goods capacity of the plant to 8.5 million tonnes by 2024. The long-term aspiration was to increase finished steel shipments between 12 and 15 million tonnes through the addition of new iron and steel-making assets.

The Business Standard reported

BS: NCLAT may ask Arcelor to pay Rs 42k cr in separate account

9 April 2019: The National Company Law Appellate Tribunal (NCLAT) on Tuesday said it may direct ArcelorMittal, in the next hearing on April 23, to deposit Rs 42,000 crore for acquisition of the insolvent Essar Steel in a separate account.

The two-member bench, headed by Justice S.J. Mukhopadhaya, also directed ArcelorMittal to file an affidavit detailing the steps to be undertaken in the resolution plan of Essar Steel.

Arcelor told the NCLAT that it is ready to bring in money, but can’t deposit it without the lenders executing a debt assignment agreement in the favour of the company, adding that there is some reluctance on lenders’ part to execute this agreement.

The Delhi-based appellate tribunal had approved ArcelorMittal’s bid of Rs 42,000 crore on March 18, dismissing the Essar promoters Ruias’ plea against the approval of the NCLT’s Ahmedabad bench to the bid.

ArcelorMittal’s resolution proposal for Essar Steel provides financial creditors Rs 41,987 crore out of their total dues of Rs 49,395 crore. Operational creditors, under the plan, would get Rs 214 crore against the outstanding Rs 4,976 crore. They are contesting this before the NCLAT.

Essar Steel owns a 10-million-tonne steel mill in Hazira, Gujarat. It was was among the first 12 cases selected by the Reserve Bank of India to be resolved under the Insolvency and Bankruptcy Code.

According to reports, the company has recorded its best ever production at 6.8 million tonnes, higher by 10 per cent over the previous year and around 24 per cent in 2016-17.


The Business Standard reported

BS: NCLAT can’t force us to change approved resolution plan: Essar Steel CoC

4 March 2019: The lenders to debt-ridden Essar Steel had approached the apex court on Monday challenging the NCLAT’s March 18 and March 20 orders in which it had asked the Resolution Professional (RP) of the company to call a fresh meeting of the CoC to consider redistribution of funds among the financial and operational creditors. The matter will be heard on April 8.

Essar Steel lenders have also challenged the NCLT Ahmedabad’s March 8 judgement in which it had, while approving the resolution plan of ArcelorMittal, suggested that the CoC of the debt-ridden Essar Steel reconsider the distribution of funds among the operational and financial creditors.  

In their plea before the apex court, the CoC of Essar Steel said that once the plan was approved by the NCLT and the NCLAT, any variation in payments to the financial and operational creditors of the company would amount to variation in the consent given by the members of the lenders’ committee.

“In the aforesaid circumstances, the directions to reconsider manner of distribution of proceeds under a resolution plan in light of the adjudicating authority’s (NCLT’s) suggestions and recommendations is completely unwarranted, unjustifiable, and equally without jurisdiction,” the CoC said in its plea.

Such directions by NCLT and NCLAT asking the lenders to reconsider the distribution of funds among the various creditors take away the rights of the CoC to make commercial decisions. The orders, the CoC said, proceed on an assumption that the distribution of proceeds under ArcelorMittal’s plan is “discriminatory and fails to balance the interest of all stakeholders including the operational creditors”.

The Business Standard reported

LM: ArcelorMittal readies India team to run Essar Steel

4 April 2019: As ArcelorMittal SA inches closer to its first acquisition in India, the Luxembourg-based steel giant is readying a crack team that can take control of Essar Steel as soon as the deal is completed. Mint has learnt that the company has finalized office space in Mumbai and engaged Korn Ferry, a Los Angeles-based management consultancy, to hire senior executives for the new team.

ArcelorMittal has taken up around 300 seats at CoWrks in Mumbai, two people aware of the matter said. CoWrks is a shared office space provider promoted by Bengaluru-based realty firm RMZ Corp. In Mumbai, it runs a three-storey shared office space spread over 130,000 square feet that can seat up to 2,000 people. The current occupants include Ericsson AB, Boeing Co., ZTE and Razorpay.

It is unclear when ArcelorMittal plans to start operations from CoWrks and the term of its lease. The shared workspaces are typically leased for a few months to up to 10 years, said a CoWrks official, requesting anonymity.

“It’s common practice even for large companies to take up space at co-working offices. What it provides is flexibility as well as the speed of starting their operations. Secondly, it gives flexibility to expand or contract when required while they are testing their business model. Third is the hassle-free environment as companies do not have to manage the space,” said an executive with a shared office provider.

Essar Steel had 3,806 employees as of March 2018, as per its most recent annual report. It operates a 10 million tonne per year steel plant at Hazira, Gujarat.

While ArcelorMittal’s takeover bid for Essar Steel has been approved by the National Company Law Appellate Tribunal (NCLAT), lenders to Essar Steel are debating how the ₹42,000 crore upfront cash payment offered by the buyer will be split among various parties.

ArcelorMittal has given Korn Ferry the mandate to review the management team at Essar Steel and hire for senior positions, said two other people aware of the matter. The steel giant may be working with more consultants, these people said.

“The entire India acquisition is being driven by Aditya Mittal who has set up a large cross-functional team out of ArcelorMittal Belgium,” the first of the two people said. “ArcelorMittal employs several Indian expats across the world; they are likely to have identified CXOs out of the ArcelorMittal Belgium team. I think when they finally come in, they want to hit the ground running and turn the company around as soon as possible.”

Aditya Mittal is the son of Lakshmi Niwas Mittal, ArcelorMittal chairman and chief executive officer. A spokesperson for ArcelorMittal did not respond to emailed queries. Senior executives at Korn Ferry India and CoWrks did not comment.

“Unlike other steel companies that were completely stripped off talent by the time they were acquired under IBC (Insolvency and Bankruptcy Code), Essar Steel has very good manufacturing and marketing talent,” the first person said.

“So, I think this cross-functional team will first come to India, and they will review the entire senior and mid-level leadership team to assess fitment and capabilities, and the Essar structure and give them feedback. After the takeover and after putting all these things in place, they will recruit to fill the gaps.”

A senior executive at a private steel producer said ArcelorMittal may also explore executives at other steel companies. “But that maybe six months from now, not right away,” the executive said.

Anticipating this move, private steel producers are already identifying and ring-fencing their key talent and conducting risk-retention analysis. “However, we’re not too sure if there will be a large exodus because Essar already has a large team in place.”

“For manufacturing companies like ArcelorMittal, they would probably cast the net wider when it comes to looking for talents. Some of the roles would also be local in nature. These days the trend is not to look only among competitors but also to hire from outside the industry,” said Ronesh Puri, managing director, Executive Excess (India) Ltd, a hiring firm.

The LiveMint reported

BS: SBI moves SC against NCLAT advice to give more cash to StanChart

1 April 2019: The Essar Steel’s debt resolution battle has reached the Supreme Court (SC) with State Bank of India (SBI) moving the apex court against the National Company Law Appellate Tribunal (NCLAT) advice to give more cash to Standard Chartered (StanChart), which has made a claim of Rs 3,487 crore against the company.

The SBI action came just days before the NCLAT was to hear the outcome of the committee of creditors (CoC) meeting on April 9.  During the NCLAT hearing, SBI had said Standard Chartered was not a secured creditor and should not be allowed to make any additional claim from ArcelorMittal’s Rs 42,000-crore offer. 
Standard Chartered had informed the tribunal that it was only getting 1.7 per cent of its dues or Rs 60 crore, while other lenders are getting 92 per cent, based on ArcelorMittal’s payments plan. But SBI had opposed giving equal treatment to Standard Chartered, saying the bank was not a secured creditor as its loan was not directly to Essar Steel but to a promoter entity.
In July 2, Standard Chartered had asked the resolution professional (RP) of Essar Steel that its claim of Rs 3,487 crore pertaining to its loan to Essar Steel Offshore Limited (ESOL) should be reclassified from unsecured to a secured one on the basis of share pledge made by the promoters. It said the corporate guarantee for the loan was provided by Essar Steel for the ESOL loan.

The RP agreed to Standard Chartered’s claim to be converted into a secured one based on security of pledge of shares.  

But on 31 August, Essar Steel’s lenders, led by SBI, ICICI Bank, IDBI Bank, Edelweiss ARC, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India and Punjab National Bank, objected the re-classification of Standard Chartered loan from unsecured to a secured lender. 
The lenders expressed their objection on Standard Chartered being a financial creditor on grounds of execution of guarantee without obtaining no objection certificate (NOC) from them, based on which, the lenders said the Standard Chartered’s claim is invalid, unsustainable in law, ultra vires and far beyond Essar Steel’s powers and authority. 

In this regard, a reply letter dated September 10, 2018, was sent on behalf of the RP mentioning that the RP would suitably record the objections (as set out in the said letter dated August 31) in the list of creditors of ESIL. 

Interestingly, last week 70 per cent of the lenders agreed to set aside Rs 1,000 crore more for  the  operational creditors of Essar Steel as against Rs 200 crore earmarked earlier, according to ArcelorMittal’s debt resolution plan. This plan, however, excluded Standard Chartered. 

Essar Steel’s operational creditors have made a claim of Rs 4,700 crore against the company. The NCLT’s Ahmedabad Bench had earlier ordered that lenders must share 15 per cent of ArcelorMittal’s upfront cash with operational creditors, while the rest could be distributed to the lenders.

Essar Steel was sent for debt resolution in June 2017 after the company failed to repay its debt worth Rs 54,000 crore to Indian banks.

The Business Standard reported

ET: Essar Steel’s operational creditors to get Rs 1,000 crore more

1 April 2019: Majority of lenders to Essar Steel have voted in favour of giving Rs 1,000 crore more to operational creditors as part of the settlement offered by ArcelorMittal, but rejected Standard Chartered’s claims for a higher amount, which may further delay resolution in the 21 month-old insolvency case. Creditors now expect the UK-based lender to challenge the decision of the committee of creditors (CoC) in the Supreme Court. 

“Some banks and foreign funds did not want to give more because it will set a wrong example after a resolution has been approved, but the majority wants things to move ahead,” an executive at one of the creditors told ET. 

In the CoC vote on Saturday, some creditors like ICICI Bank and distressed funds from abroad opposed the decision to give more to operational creditors, saying it would create a wrong precedence and could lead to more demands from them. 

Lenders had to put the proposal to vote after the National Company Law Appellate Tribunal (NCLAT) suggested they consider giving more to operational creditors and Standard Chartered. 

NCLAT will hear the matter on April 8 and bankers expect that the matter is headed for the Supreme Court whatever the appellate court decides. 

“StanChart will surely oppose this,” said the person cited above. “Then, there is also the chance that operational creditors would want more than what is offered now and will appeal. Whatever it is, only the Supreme Court will decide.” 

So far, operational creditors were slated to recover less than 5% or Rs 214 crore out of their Rs 4,976 crore outstanding. That amount will now increase to around Rs 1,214 crore. As a result, the lenders’ recovery will drop by Rs 1,000 crore.

According to the proposal submitted by AreclorMittal, financial creditors led by SBI were to get 92% of their dues, which comes to around Rs 41,987 crore of the total Rs 49,395 crore. 

Lenders were hoping they can close this case and write back provisions for the fiscal ended March 2019, but delays and counter claims have pushed resolution to the next fiscal. “One school of thought among financial creditors was to not give anything more to anyone because even compromising does not guarantee a resolution,” said the person quoted earlier. “That is also a reason why some opposed the decision to give more.” 

Unlike Indian banks, Standard Chartered had not loaned funds to the parent company but to its subsidiary; hence, it did not have the first charge of its assets. It had voted against the CoC resolution, saying that it was discriminatory. 

The Ahmedabad bench of the NCLT had asked CoC to consider revising its distribution to pay all financial creditors on a pro-rata basis, which would give Standard Chartered a larger share than 1.7% or Rs 60 crore of its Rs 3,500-crore dues, which is what it would get under the current plan.

The Economic Times reported

FE: Essar Steel: Upset with NCLAT, banks to move court

30 March 2019: Lenders to Essar Steel have decided to move the Supreme Court in the event the National Company Law Appellate Tribunal pressures them to pay unsecured financial creditors more than they are inclined to. “It is unfair that CoC (committee of creditors) be repeatedly asked to reconsider commercial decisions which we have taken with all stakeholders’ interest in mind and which, most importantly, has already been approved by the tribunal,” a banker with a state-owned lender said. Banks could approach SC before April 9 with a plea that proceedings in the Essar Steel case be expedited.

The NCLAT has directed lenders to consider a higher payout to unsecured financial creditor Standard Chartered. As of now, the foreign bank is set to receive only Rs 60.71 crore or 1.7% of the admitted claims under the approved ArcelorMittal resolution plan.

Lenders will vote on Saturday on whether to set aside of Rs 1,000 crore from their receipts for operational creditors. Most lenders are understood to be in favour of this move by which the amount will be distributed pro rata to operational creditors on basis of their admitted claims, bankers aware of the development told FE.

The results of the 24-hour electronic voting will be known by Saturday and subsequently presented to the NCLAT.
“Operational creditors’ accepted claims stand at around Rs 5,000 crore and for them the CoC is likely considering setting aside Rs 1,000 crore,” a senior banker said.

When stakeholders were initially invited to submit claims, Standard Chartered had lodged its claim for Rs 3,487.09 crore. The lender was later classified as a secured financial creditor with Rs 2,646.05 crore as principal outstanding. However, the value of `60.71 crore was arrived at based on the value of the security possessed by the applicant and the liquidation value of the assets of the company.

According to the ArcelorMittal resolution plan approved by the National Company Law Tribunal, operational creditors (OCs) and other stakeholders, having a debt value of Rs 1 crore and above, on the basis of their admitted claims, would receive nil amount. There is a provision of Rs 196 crore for those OCs whose outstandings is less than Rs 1 crore.

The plan envisages an upfront payment of Rs 42,000 crore to secured financial creditors. Moreover, unsecured financial creditors are to be paid Rs 17.4 crore while Rs 30.5 lakh is to be paid upfront to unsecured FCs whose admitted claims are less than Rs 10 lakh.

On March 20, the appellate tribunal directed Essar Steel’s resolution professional to call for a fresh bankers’ meet to reconsider distribution of the Rs 42,000-crore upfront payment, under the ArcelorMittal resolution plan, between financial and operational creditors. The NCLAT was hearing an urgent application moved by Standard Charted Bank and is next scheduled to hear the matter on April 9.

The appellate tribunal also reportedly said that the March 8 order of the Ahmedabad-based NCLT bench approving ArcelorMittal plan should be implemented in “letters and spirit”. According to the Ahmedabad bench’s March 8 written order, the two-member bench proposed and advised that of the Rs 42,000 crore to be received from ArcelorMittal as upfront payment to financial creditors, the CoC could allot 85% for distribution on a pro rata basis among all financial creditors, which could address Standard Chartered’s concerns.

The NCLT further suggested that another 15%, amounting to Rs 6,300 crore be distributed among other OCs and other stakeholders, who are going to receive nil amount, i.e. those OCs whose outstandings are more than Rs 1 crore and more so they recover at least 50% of their principal dues.

The Financial Express reported