Electrosteel Exits RBI’s Dirty Dozen – But What’s the Damage?

New Delhi: Lenders of Kolkata-based Electrosteel Steels have taken as much as a 60% haircut as part of the resolution plan agreed upon for the bankrupted steelmaker under the corporate insolvency process.

Electrosteel is the first company out of 12 large corporate defaulters referred by the Reserve Bank of India for insolvency proceedings in June 2017 for whom the resolution plan has been approved for recovery of unpaid loans.

The Kolkata-based steelmaker owes Rs 13,395 crore to a clutch of lenders including State Bank of India. Anil Agarwal-promoted Vedanta has picked up 90% stakes in Electrosteel for Rs 5,320 crore.

Earlier, Dalmias-owned Renaissance Steel had questioned the eligibility of Vedanta’s bid.

Electrosteel is setting up a 2.5 million tonne steel plant near Bokaro. The National Company Law Tribunal (NCLT) on Monday approved the resolution plan of Vedanta, endorsing the views of the committee of creditors (CoC).

The creditors had approved Vedanta’s bid after a six-hour meeting on March 29, which was challenged by Renaissance Steel at the NCLT. Vedanta had revised its bid to Rs 5,320 crore.

Following the NCLT order, Vedanta has said that – pursuant to the resolution plan — a wholly-owned subsidiary of the company will subscribe to the share capital of Electrosteel for Rs 1,805 crore and provide additional funds of Rs 3,515 crore by way of debt.

Upon implementation of the resolution plan, the company will hold approximately 90% of the paid-up share capital of Electrosteel.

The balance 10% share capital will be held by Electrosteel’s shareholders and financial creditors, who received stock in exchange for the debt owed to them.

Electrosteel owns and operates a greenfield integrated steel manufacturing facility near Bokaro, which has a current capacity of 1.5 million tonnes per annum with the potential to increase it to 2.5 mtpa.

Vedanta said, “The directors of the company believe that the transaction will complement the group’s existing iron ore business as the vertical integration of steel manufacturing capabilities has the potential to generate significant efficiencies.”

Four companies including Vedanta, Tata Steel and Renaissance Steel had submitted bids for the assets of Electrosteel.

Under the Insolvency and Bankruptcy Code, companies are ineligible to submit bids if any of their subsidiaries have been convicted for an offence punishable for more than two years.

Renaissance Steel had claimed that Konkola Copper Mines, a unit of Vedanta Resources, had been convicted of flouting environmental laws in Zambia, an offence punishable with three years in jail, and hence ineligible to bid.

Although lenders had taken a stand that Konkola Copper Mines could not be described as a “connected” entity under IBC, the NCLT disagreed. But because only fines were imposed on the delinquent company, the NCLT said that Vedanta was not barred from bidding for stressed assets.

Crisil, a rating agency, has said that the banking system’s total bad loans could be as high as Rs 11.5 lakh crore as only 66% have been recognised by banks.

The rating agency has also cautioned that lender might have to take haircuts of up to 60%. This assessment has now come true at least in the case of Electrosteel.

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