ArcelorMittal, Numetal ineligible to bid for Essar Steel: Kroll report

A forensic audit report by Kroll, a corporate investigations and risk-consulting firm, has said both ArcelorMittal and VTB Bank-backed Numetal were ineligible to bid for Essar Steel. 

The audit report said there were several regulatory cases pending against both the bidders. If Essar Steel’s lenders accept the report, bids by both hopefuls could be rejected at the meeting of the committee of creditors (CoC) on Friday.

On Tuesday, the CoC had opened the financial bids. Arcelor’s bid was higher than Numetal’s and required lenders to take a 40 per cent haircut on the stressed asset’s debt.

A source who attended the meeting in Mumbai said the Kroll report was taken on record by the lenders. It would be taken up for discussion in the next meeting. Kroll examined 2,000 companies across the world and in over 80 jurisdictions connected to both bidders and promoters. 

Some of the lenders are of the opinion that despite the report both companies should be allowed to bid so that there is more competition in the next round of bidding. “There will be some pending case against almost any company in the world,” said a source.

The lenders have also asked their lawyers, Shardul Amarchand Mangaldas, to provide them options in the next meeting after taking the Kroll report into account. A source said lenders will decide internally after consulting their legal teams and come prepared with options. 

During the CoC meeting on Tuesday, lenders also discussed an offer letter from JSW Steel, which wants to bid solo for the company in the next round. The additional offer, lenders felt, would increase the value of the company. For now, JSW has teamed up with Numetal to bid for the company.

But before that the lenders could ask for bids of second round to be opened, said sources. Vedanta has also made an aggressive bid. Both Numetal and ArcelorMittal spokespersons declined to comment on the Kroll report. 

A source said the lenders are also not happy with the offers made by ArcelorMittal and Numetal as both bids sought high haircut from the banks. 

Essar Steel owes close to Rs 440 billion to banks while the offer from ArcelorMittal was to take over debt worth Rs 303 billion and Rs 2 billion to unsecured lenders.  Both JSW Steel and Vedanta have won one company each in the ongoing bankruptcy process and lenders are keen that bids from both companies are permitted in the next round. 

While JSW Steel has emerged as the highest bidder for Monnet Ispat, Vedanta is the highest bidder for Electrosteel Steel. Both Monnet and Electrosteel Steel had defaulted on loans and were sent to the National Company Law Tribunal (NCLT) by banks for debt resolution.

Last week, the NCLT Ahmedabad bench remanded the first round of bids made by Numetal and ArcelorMittal to the resolution professional concerned and the CoC, and pointed out that payment of overdue amount was a cure for resolution applicants who were promoters of non-performing assets for more than a year. 

The sale of shares and declassification did not absolve them of their responsibility, it had observed in the case of ArcelorMittal. However, the CoC was not to be influenced by the tribunal’s observations and was asked to take an independent view on eligibility.

Numetal is likely to challenge the NCLT order in the National Company Law Appellate Tribunal, and banks would prefer to wait for the outcome. 

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