Running out of patience after an 18-month wait in the National Company Law Tribunal (NCLT) to see recovery of Essar Steel loan, State Bank of India (SBI) has put on sale its entire exposure of Rs 15,431.44 crore to the troubled steelmaker on a full-cash basis.
Coming ahead of the NCLT hearing on January 31, the posturing of the largest lender has come as a surprise to the market and indicates that the resolution on Essar Steel will continue to be stuck in legal hurdles even after a consortium led by ArcelorMittal was declared the winning bidder.
According to a source, Edelweiss, the second-largest lender to Essar Steel with an exposure of Rs 8,000 crore, is evaluating SBI's loan sale offer. SBI has set the aggregate reserve price for bidding at Rs 9,588 crore, lower than the Rs 11,313.42 crore that it would have recovered from ArcelorMittal's resolution plan.
"We will take a call shortly. If there are no hidden clauses, we will put an aggressive bid," a senior Edelweiss official said.
Banks are incurring an interest loss of Rs 17 crore a day on the Rs 45,000 crore of unpaid loans stuck in Essar Steel, a senior banker said. "This could be another reason for the lead banker to exit." Last year, Bank of Baroda had sold off part of its loans to Essar Steel.
SBI has fixed the floor price based on the net present value (NPV) of minimum recovery discounted at 18% with a time of factor of one year. With the NCLT unable to give a final order, SBI has called for expression of interest (EOI) by January 18 and the interested investors have to complete the due diligence by January 29. The e-bidding will be conducted on January 30. "Interested parties, including asset reconstruction companies (ARCs) or banks or other investors can undertake the due diligence immediately," SBI said.
The resolution plan to sell Essar Steel loans to a consortium led by ArcelorMittal was approved and filed in the NCLT Ahmedabad on October 24, 2018. But the case in the NCLT is yet to be resolved as the bidders and promoters moved court against each other.
After the creditors voted overwhelmingly in favour of ArcelorMittal who offered Rs 42,000 crore upfront payment and Rs 8,000 crore of staggered capital infusion, Essar Steel Asia Holding Ltd, the promoter firm of Essar Steel, sprung a surprise by proposing to pay Rs 54,389 crore to clear all dues of the financial and operational creditors in a last-ditch effort made by the Ruias to regain ownership of their flagship company. The proposal of the Ruias was sent on the day when the committee of creditors (CoC) of Essar Steel concluded its e-voting with more than 90% of the votes been cast in favour of ArcelorMittal bid, which was the only eligible bid. NCLT is expected to take up the case on January 31.
SBI in its offer for sale details put on its website said it will retain the pari-passu charge on the securities relating to non-funded facilities which are yet to come up for repayment. Once the non-funded facilities are honoured, these will be converted into loans and sold off to the same ARC. However, the un-devolved letter of credit (LC) and un-invoked BG (bank guarantee) limits backed by 100% margin by way of fixed deposits will not be offered for sale to the ARCs, the bank said.
The battle between ArcelorMittal and the Ruias for Essar Steel, a 10-million-tonne steel mill at Hazira in Gujarat, is expected to continue. In order to be an eligible bidder for Essar Steel, ArcelorMittal had earlier obeyed the Supreme Court directive and paid off Rs 7,469 crore to creditors of Uttam Galva and KSS Petron.
LOSING PATIENCE
- Banks are incurring an interest loss of Rs 17 crore a day on the Rs 45,000 crore of unpaid loans stuck in Essar Steel
- Edelweiss, the second-largest lender to Essar Steel with an exposure of Rs 8,000 crore, is evaluating SBI's loan sale offer
