Essar Steel lenders may get more than Rs 42,000 cr from resolution process

Lenders to Essar Steel may get more than Rs 42,000 crore from the resolution process.

Lenders and ArcelorMittal have mutually agreed to appoint Grant Thorton for an audit of Essar’s Ebitda (earnings before interest, tax, depreciation, and amortisation), which will flow to the lenders, said sources close to the development. 

Grant Thornton didn’t comment citing client confidentiality clauses. ArcelorMittal didn’t comment either.

According to clauses of the request for proposal document, the Ebidta will flow to the lenders, said sources. The minimum guarantee is Rs 2,500 crore.

As part of the bid, ArcelorMittal was making an upfront payment of Rs 39,500 crore and Rs 2,500 crore was being adjusted out of the profit generated towards working capital which works out to Rs 42,000 crore. 

Anything above Rs 2,500 crore will also go to lenders, said a top lender to Essar. “So, lenders will get more than Rs 42,000 crore. We think the Ebitda could be Rs 3,000- Rs 4,000 crore,” said a lender.

However, the exact amount would be available once Grant Thornton completed the audit.

During the National Company Law Appellate Tribunal (NCLAT) hearing, resolution professional to Essar had disclosed profits generated during the corporate insolvency resolution process, in an affidavit, based on figures provided by the acting CFO and Alvarez & Marshal. 

Accordingly, the provisional figure until March 2019 stood at Rs 4,229 crore. However, it included an amount of Rs 734 crore incurred towards finance costs for maintaining Essar as a going concern. Therefore, the Ebitda was Rs 3,495 crore. The amount of working capital adjustment as on February 28, 2019, was estimated at Rs 3,987 crore.

After the NCLAT order, the committee of creditors had, however, moved Supreme Court. 

The appellate tribunal had approved the resolution plan with modifications on distribution by putting various classes of creditors on a par. It had also said the profit should be distributed among all the creditors, including the financial and operational creditors.

The apex court first stayed the implementation of the plan. Earlier this month, it set aside the NCLAT order, paving the way for ArcelorMittal to acquire Essar Steel. The transaction for Essar is expected to close by the middle of December.

Essar was one of the 12 NPAs (non-performing assets) mandated by the Reserve Bank of India for resolution under the Insolvency and Bankruptcy Code. However, the resolution process has taken more than two years.

“A lot of paperwork is required for reassignment of debt which is taking time. Also, the audit will have to be completed,” said sources.

Sources said lenders would get the Ebidta till the time the corporate debtor was handed over to ArcelorMittal.

Essar owes lenders Rs 49,000 crore. Lenders had highlighted in court that secured creditors have lost Rs 17,000 crore of interest in the past three years due to the account having been classified as an NPA.

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