ArcelorMittal’s Essar Steel win spells loss for Gujarat
ArcelorMittal’s Essar Steel bid has no provision for the ₹1,150 crore that Essar Steel owes to several Gujarat government companies
Ahmedabad: The Gujarat government is set to lose as much as ₹1,150 crore if the dedicated bankruptcy court upholds the committee of creditors’ recommendation to accept the resolution plan of ArcelorMittal to acquire Essar Steel Ltd, said two senior officials close to the development. These dues are classified as operational creditors and ArcelorMittal’s proposal has not made any provision for payment to such creditors, they said, requesting anonymity.
Essar Steel owes about ₹1,150 crore to a clutch of Gujarat government companies including ₹872 crore to Gujarat Energy Transmission Corp Ltd.
According to details of the resolution plan listed by the Resolution Professional on Essar Steel’s website, the dues pertain to various agencies of the Gujarat government including collector of electricity duty and state maritime regulator, sales tax department and local authorities.
The resolution plan envisages upfront payment of ₹42,000 crore to lenders and additional ₹8,000 crore towards capital expenditure. The total admitted claims of operational creditors totals ₹4,995 crore. ArcelorMittal has offered to settle it at ₹214 crore.
On 25 October, more than 92% of creditors of Essar Steel voted in favour of handing over the debt-laden company to ArcelorMittal. The resolution professional on 30 October filed ArcelorMittal’s plan with the Ahmedabad Bench of the National Company Law Tribunal (NCLT).
After completion, ArcelorMittal will jointly own and operate Essar Steel in partnership with Nippon Steel & Sumitomo Metal Corp., Japan’s largest steel producer and the third-largest steel producer in the world, in line with the joint venture formation agreement.
Meanwhile, the promoters of Essar Steel, the Ruia family, submitted a proposal to the CoC on 25 October agreeing to pay a total of ₹54,389 crore to all creditors.
The proposal submitted by the shareholders and board of Essar Steel has provided for paying the dues to operational creditor and that of the government and its agencies in full, said one of the two officials cited above.
“Since the revenues of the government are at stake, it needs to be seen whether these entities take up the issue with the CoC or with NCLT to protect their interest. The state CAG would also be watching the developments,” he said.
A Gujarat government official said they are aware of the matter and will soon decide on the appropriate course of action.
Essar Steel is an integrated steel producer with an annual production capacity of 10 million tonnes. The facility comprises ore beneficiation, pellet-making, iron-making, steel-making, and downstream facilities including cold rolling mill and galvanising. Located at Hazira in Gujarat, the facility also includes a power plant and a port that can handle 30 million tonne cargo annually.
An Essar Steel official declined to comment.
A representative of ArcelorMittal also declined to comment in an email response.
According to the Insolvency and Bankruptcy Code, secured financial creditors will receive the highest priority, followed by unsecured financial creditors. If any amount is left out of the resolution amount, it will accrue to operational creditors.
The issue of excluding operational creditors has been an issue of debate. In the Bhushan Steel case, where Tata Steel emerged as the successful applicant, Larsen and Toubro Ltd, an operational creditor to Bhushan Steel, had petitioned before the NCLT, Kolkata seeking priority in repayment of dues. The bankruptcy court however held that operational creditors cannot demand priority; they shall only be paid out of balance after the secured and unsecured creditors have been paid off.
In the last week of October, Standard Chartered Plc filed a caveat petition before NCLT Ahmedabad in the Essar Steel insolvency case as dissenting financial creditor so it can be heard before the tribunal decides on ArcelorMittal’s bid. Essar Steel owes more than R₹3,400 crore to Standard Chartered.