Tata to raise Bhushan steel stake to 75%, to acquire additional 2.5%

A Bhushan Steel plant in Odisha
Tata Steel plans to buy an additional 2.5 per cent stake in Bhushan Steel from lenders, taking its stake from 72.65 per cent to over 75 per cent. This would make merger with Bhushan Steel easier. 

Lenders have given the green light to the merger of Bhushan Steel with Tata Steel in the current fiscal year itself. “Indian banks hold more than half of the minority-held shares, and hence the voting on merger resolution would be a smooth affair,” said a banking source. 

While lenders had invoked the pledge on most shares of erstwhile promoters, Neeraj Singal family holds 3.47 per cent stake in the company, and 2.59 per cent of the company’s capital is pledged. Lenders plan to invoke the pledge on the 2.59 per cent stake, which would be sold to Tata Steel. Sources say lenders would hold more than half of the stake held by minority shareholders of 25 per cent in Bhushan Steel. Lenders and Tata Steel management are currently in talks on how to implement the merger plan without further delay. “One of the obstacles is the power purchase agreement (PPA) signed by Bhushan Energy with Bhushan Steel. We have to see how lenders and Tata Steel resolve it,” said a banker. Tata Steel has proposed to take over Bhushan Energy, which supplies power to Bhushan Steel plant. But Bhushan Energy’s resolution applicant had objected to Bhushan Steel’s move to cancel the PPA with it. An email to Tata Steel did not elicit any response.

Tata Steel’s subsidiary Bamnipal Steel had acquired 72.65 per cent stake in Bhushan Steel in May this year after the company failed to repay its Rs  560 billion in debts. The company was among the 12 big loan defaulters identified by the Reserve Bank of India in June last year for debt resolution under the Insolvency and Bankruptcy Code, 2016.

Tata Steel has paid Rs 352 billion in cash to lenders to acquire Bhushan Steel and it has taken over the remainder loan on its books for Rs 1 billion.  A banking source said the Tatas are in talks with tax consultants on whether the minimum alternate tax (MAT) will be applicable on Bhushan Steel or not. There is no clarity on MAT as yet.

The National Company Law Appellate Tribunal (NCLAT) will hear the Bhushan Steel matter on July 3 after Larsen & Toubro moved the NCLAT to recover its Rs 9 billion dues from the company. The NCLAT has also asked Tata Steel whether it would pay the income tax and goods and services tax dues.

Tata Steel is also in the race to take over Bhushan Power & Steel, which has also defaulted on Rs 372 billion in debts. Tata Steel has offered to take over the company by giving Rs 240-billion upfront cash to lenders. There is no decision as yet as London-based Liberty House has also made an offer, but after the deadline. The matter is currently pending with the National Company Law Tribunal.