Seven hundred and one days and counting, and the resolution in the case of Essar Steel remain elusive. While the National Company Law Appellate Tribunal (NCLAT) finally approving the Rs 42,000 crore bid for Essar Steel is a big win for ArcelorMittal, it has come as a setback for the lenders to the debt-laden steelmaker.
The NCLAT has approved ArcelorMittal-Nippon Steel's bid for Essar Steel with riders, taking away the committee of creditors' power to decide the allocation or distribution of proceeds.
In October of 2018, when the CoC had approved ArcelorMittal's resolution plan with a thumping majority, they had anticipated recovery of 92 percent against their claims.
With today's ruling, the recovery amount has been slashed by almost 30 percent, to 60.7 percent by the court. At the same time, the tribunal, in an unexpected move increased the admitted claims of the operational creditors from about Rs 5,000 crore to over Rs 19,700 crore, and said that they would be treated at par with the secured creditors, and repaid 60 percent of their dues.
For instance, financial creditors, whose claims amounting to Rs 49,473 crore were admitted by the insolvency resolution professional, were hoping to recover Rs 40,987.70 crore as per the plan approved by the CoC.
However, the NCLAT ruling today only allowed for Rs 30,030 crore to be allocated to the financial creditors as per the formula it worked out.
While the banks stand to lose significant amounts due to this, the only financial creditor who stands to gain in Standard Chartered Bank, that was initially allocated Rs 60 crore as per the CoC approved the plan, but will now be paid Rs 2,117 crore - at par with the other secured financial creditors.
The other big winners are the operational creditors, who were allotted Rs 1,196 crore as per the CoC approved plan but will now be given Rs 11,969 crore as per the NCLAT ruling.
"Atrocious"..."unbelievable"..."highly disappointing" and "awful" were some of the words used by the banking executives CNBC-TV18 spoke to about the NCLAT verdict.
Banks questioned the court's decision to treat all classes of financial creditors and operational creditors at par, expressing discomfort at the court setting this "disturbing" precedent. Some of the banks CNBC-TV18 spoke to on the condition of anonymity opined that such rulings would discourage investors who are actively eyeing the distressed assets space.
A State Bank of India official confirmed to CNBC-TV18 that the lender's consortium would be moving the Supreme Court against the NCLAT verdict at the earliest.
ArcelorMittal may be inching closer to making its India foray with the acquisition of Essar Steel, but for lenders who are now preparing for another round of battle at the Supreme Court, each day of delay will cost Rs 17 crore from the anticipated recovery.
"We note today’s ruling by the NCLAT. We need to review the full written order to understand any implications on completion of the transaction," ArcelorMittal spokesperson said.
Reacting to NCLT order, Essar spokesperson said, "It appears that new facts regarding ineligibility under Section 29A, which emerged only after the previous judgement of the Supreme Court, have not been given due consideration. We are awaiting the detailed order and will decide our course of action thereafter."