JSW Steel Ltd will support the Ruia family in its bid to win back control of Essar Steel Ltd, if a bankruptcy court approves the family’s offer to repay all outstanding debt of the insolvent steel maker.
JSW will be an equity partner with the Ruias’ Essar group, along with foreign financial investors, according to two people aware of talks between the two promoter groups.
The Ruias have offered to repay almost all of Essar Steel’s debt of ?54,550 crore, topping the ?42,000 crore bid by ArcelorMittal that was approved by the bankrupt steel maker’s committee of lenders. The Ruias’ offer, however, faces a formidable legal hurdle as India’s bankruptcy code bars promoters of insolvent companies from bidding for such assets.
The resolution of Essar Steel, a 10 million tonne per annum steel mill, has tied up creditors, prospective buyers and courts in knots. Prashant Ruia, chief executive of Essar group, told reporters on 16 January that he was confident both creditors and courts would back his group’s higher bid of ?54,389 crore, allowing it to win the steel mill back.
“We have equity partners who are backing the bid,” Ruia said, without naming the investors.
Now, it appears JSW Steel is keen to back the Ruia offer. “The Jindals may be unwilling to come out publicly to support them right away,” a person aware of talks between the two promoter families said. “But if the Ruias succeed in convincing the court of their argument, I believe JSW will then come in as an equity partner.”
The Ruias have also tied up with a few foreign partners to back its offer. JSW, on its part, may also vie for operational control of the plant, which will give it a foothold in western India.
In fact, JSW Steel unsuccessfully tried to be part of Essar Steel’s resolution process in its early stages. In April 2018, JSW acquired 26% in the Indian subsidiary of Numetal Mauritius, in effect taking the place of Essar family member Rewant Ruia, who was part of an earlier avatar of the Numetal consortium that bid for Essar Steel. When that bid failed, JSW Steel toyed with the idea of submitting a lone bid, but abandoned the plan when it became clear that it would not pass muster in court.
JSW is currently implementing a massive capacity expansion at its existing steel plants, with a target to reach 24.7 million tonnes a year by FY21. Despite lacking captive raw material resource, JSW Steel is one of the most efficient producers of steel globally. Even partial control of the Essar steel mill will add significantly to its heft in the domestic steel market, leaving competitors such as Tata Steel Ltd and public sector firm Steel Authority of India Ltd far behind.
“Allowing the Ruias to stay on gives JSW the added advantage of keeping ArcelorMittal out,” another person said on condition of anonymity. “Even if ArcelorMittal chooses to match the Ruia bid and pay all creditors in full, their cost of acquisition will be so high that the plant will take several years before it can be financially sustainable.”
A spokesperson for JSW Steel said it doesn’t comment on market speculation. An email sent to a spokesperson for Essar group remained unanswered till press time.
BloombergQuint reported on Tuesday that Sajjan Jindal is of the view that the Ruias should be a given a chance to take control of Essar Steel despite the legal restrictions as they are offering to repay the entire debt.
In response to Sajjan Jindal’s comments supporting the Ruias, a spokesperson for ArcelorMittal said: “It appears there are certain parties in India who would like that the IBC not be implemented according to the law. The IBC was introduced for a very serious reason—to address a major problem with bad loans. If the law is not implemented correctly and the rules are flouted, as suggested by some, this sends a negative signal about the certainty of India as an investment destination… ArcelorMittal has followed the process from the start. We fully expect the process to continue to be implemented correctly and as per the law and that statements attempting to convince otherwise not be given any credibility.”
Either way, a decision has to be taken soon. On Wednesday, the National Company Law Appellate Tribunal (NCLAT) directed the Ahmedabad bench of the National Company Law Tribunal (NCLT) to pass an order on the insolvency case filed against Essar Steel (India) Ltd. “We allow the designated authority (NCLT) to pass appropriate orders by the next date, failing which this appellate tribunal will decide,” said a two-member NCLAT bench headed by its chairperson, Justice S.J. Mukhopadhaya. If the Ahmedabad bench of NCLT does not pass any order by 31 January, NCLAT would pass an order accordingly on the next date of hearing, the bench added.
The Essar Steel case is mired in several rounds of litigation and counter-litigation, filed by the Essar Group, prospective bidders and operational creditors unhappy with certain aspects of the resolution. A lawyer, who is party to one of the several cases involving Essar Steel, said: “The NCLAT is concerned about the approval of ArcelorMittal’s resolution plan and the objections against it. However, NCLT will have to take everything into consideration, including the application by Ruias for approval of their resolution plan, while deciding on the matter. If the resolution plan by ArcelorMittal is approved, then automatically the Ruia’s appeal stands cancelled.”