New twist to Essar tale, SBI seeks to sell Rs 15,000 cr bad loans

New Delhi: Adding a fresh twist to the tale, the lead banker in the committee of creditors (CoC) overseeing the Essar Steel insolvency resolution process has decided to recover its share of dues from the steel maker by initiating a separate recovery process outside the Insolvency and Bankruptcy Code (IBC). While the legal sanctity of the move is still unclear, it is feared that the move may stymie the entire resolution process.

Sources privy to the development said State Bank of India (SBI) would sell over Rs 15,000 crore worth bad loans belonging to Essar Steel to recover its dues from the debt-laden steel maker. For this, it has already put an advertisement inviting expression of interest (EoI) from banks/asset reconstruction companies (ARCs), non-banking finance companies and financial institutions.

If the auction of SBI’s non-performing financial assets with total dues of Rs 15,431.44 crore goes ahead as planned, it could further complicate the resolution of Essar Steel that is awaiting order from the National Company Law Tribunal (NCLT) over admissibility of a fresh bid put forward by its shareholders, proposing full settlement of all claims of financial and operational creditors.

“This is a very curious development, as it negates the whole purpose of IBC that allows creditors to work out a resolution plan for a debt-ridden company within a timeframe or proceed with liquidation. If individual creditors look for settling their share of debt outside the IBC, a resolution plan will never be worked out and the process will go into further legal complications,” said an industry observer asking not to be named.

In advertisement calling for EoI, SBI has put the reserve price for the recovery of bad loans from Essar Steel India at Rs 9,587.64 crore. The bank said the resolution plan for the recovery of non-performing asset (NPA) has been approved and filed in NCLT Ahmedabad, according to which the minimum recovery to the bank is Rs 11,313.42 crore.

The SBI ad said interested parties can conduct due diligence of the asset with immediate effect, after submitting EoI and executing a non-disclosure agreement (NDA) with the bank. The sale of the NPA account is to happen through e-auction on January 30, as per the bid invite.

In September last year, SBI had withdrawn the process of sale of debt of Essar Steel to ARCsafter NCLAT asked lenders of the debt-ridden firm to consider the second round bid of Numetal and mining baron Anil Agarwal-led Vedanta.
Essar Steel, which runs a 10-million-tonne steel mill in Gujarat, owes more than Rs 49,000 crore to over two dozen banks led by SBI and has been under bankruptcy proceedings. As per the resolution plan submitted by ArcelorMittal, Rs 42,000 crore will be paid to the secured lenders, while an additional Rs 8,000 crore will be pumped into the company as working capital.

ArcelorMittal's offer to take over Essar Steel was accepted by the CoC.

Essar Steel Asia Holding, the holding company of Essar Steel that was controlled by the Ruias, had also proposed to the CoC, led by SBI, to pay an upfront Rs 54,389 crore to retake the management of Essar Steel.

Last week, the Ahmedabad bench of NCLT reserved its verdict on the maintainability of the bid by Essar Steel Asia Holdings to retake the management of the company. ESIL is among the list of top 12 large corporate debtors, referred as ‘dirty dozen’ that was referred by the RBI for resolution in insolvency courts. Though priority was accorded to resolve this bankrupt entity as per timelines given in IBC, its resolution process has been anything but immediate. The case is way past its 270-day timeline even as some of the similar bankrupt steel firms have found new owners.