ArcelorMittal submits a higher bid for bankrupt Essar Steel but on one condition

• ArcelorMittal, the world’s largest steelmaker, has submitted a revised bid of ₹420 billion, which is well above Numetal’s ₹370 billion offer.
  
• However, the Luxembourg-based steelmaker has yet to clear the dues owed by its local subsidiaries, Uttam Galva and KSS Petron, which calls into question its eligibility to bid.
  
• It will only pay the outstanding dues on the condition that its bid is accepted by Essar Steel’s creditors. The matter is being heard by the Supreme Court.

A fresh round of bidding for the indebted Essar Steel - which was one of the first 12 accounts identified by the RBI for resolution last year - began this week. Just like the first round, ArcelorMittal, the world’s largest steelmaker, will face off against Russia’s Numetal. Vedanta is also participating but its bid is much lower.

The two companies were deemed to be ineligible to bid for Essar Steel in the first round. On one hand, two local subsidiaries of ArcelorMittal, Uttam Galva and KSS Petron, had defaulted on their loans. This went against the rules of the Indian bankruptcy code, which prevents wilful defaulters or entities associated with wilful defaulters from bidding for bankrupt firms. Meanwhile, it was revealed that Numetal bid was partnering with the former promoters of Essar Steel for its bid, the Ruia family, which was also a contravention of the bankruptcy code.

However, last week, the the National Company Law Appellate Tribunal (NCLAT) allowed Numetal to participate in the bidding after the 25% stake owned in it by the Ruias was bought by JSW Steel. It also approved ArcelorMittal’s eligibility on the condition that it paid the ₹70 billion outstanding dues of Uttam Galva and KSS Petron by September 11th.

Second act drama

On September 10th, ArcelorMittal, which is partnering with Japan’s Nippon Steel & Sumitomo Metal for the bid, submitted a revised offer of ₹420 billion for Essar Steel, which includes an offer to clear the dues of its subsidiaries. This was well above its original offer of ₹310 billion and Numetal’s ₹370 billion bid.

If the bid is accepted, it will mark a significant win for India’s new bankruptcy regime. However, there’s one large hurdle standing in ArcelorMittal’s way.

Despite selling its shares in its local subsidiaries, the Luxembourg-based steelmaker has not yet cleared the dues owed by them, which calls into question its very eligibility to bid as today is the deadline to do so. More importantly, in a letter to sent to Essar Steel’s creditors, it has said it will only pay the outstanding loans of Uttam Galva and KSS Petron if its bid for Essar Steel is accepted.

Third act resolution?

Given the NCLAT’s refusal to recognise its eligibility, ArcelorMittal has now taken the case to the Supreme Court. Essar’s creditors will obviously go for the higher bid, but will want to avoid any further litigation.

Essar, which is India’s fourth-largest steelmaker, has outstanding dues of ₹490 billion. Unless Numetal is able to match ArcelorMittal’s bid, it seems certain that that Essar’s creditors will pick the latter as their secured debt claims will be covered.

However, the final decision rests with the Supreme Court. ArcelorMittal’s appeal will be heard tomorrow. A ruling on the matter is expected soon. The outcome will set an important precedent for Section 29A of the Insolvency and Bankruptcy Code, which determines the eligibility of bidders.