Suitors Line Up for Struggling Essar Steel’s Assets

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One of India’s largest steelmakers, Essar Steel, which is battling bankruptcy, has potential suitors lined up for its assets — though most are unwilling to come on record for the time being.

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Korean firm Posco and India’s largest steel company Tata Steel are reportedly thinking of bidding for Essar’s stressed assets. The latter was among a dozen large companies that India’s central bank, the Reserve Bank of India (RBI), had identified to be taken to bankruptcy courts to help clean up the banking system that is saddled with stressed loans.

According to reports, Essar Steel, with a capacity of 10 million tons per annum, had about $6 billion of debt in the 2015-16 fiscal year.

Days after the Essar Group had concluded the sale of its oil business to Russia’s Rosneft for U.S. $12.9 billion, the Ruia family-controlled conglomerate’s metal business, too, seems to have attracted suitors, news reports here said.

Tata Steel may be looking at Essar Steel to get itself a better position in western India.

According to one report, a Tata Steel spokesperson said the company was evaluating “various strategic opportunities on an ongoing basis.” It added that at a recent Tata Steel annual general meeting, while responding to shareholder queries on whether the firm would consider buying stressed steel assets, including Essar Steel, Tata group Chairman Natarajan Chandrasekaran replied the company was open to “everything.”

Earlier in August, India’s National Company Law Tribunal (NCLT) had admitted Essar Steel’s insolvency case, after a court had dismissed the company’s petition against the RBI in a bankruptcy process initiated against the firm.

Incidentally, Essar Steel is one of the “dirty dozen,” the 12 accounts with large unresolved non-performing assets (NPAs), which the RBI had identified for speedy action for recovery of dues.

Essar Steel, in its petition, appealed that the RBI notification had arrived even while it was trying to implement a board-approved restructuring package. Once a company is admitted, its board is dissolved and an interim resolution professional takes charge of running the day-to-day affairs.

Meanwhile, in a recent development, Essar Steel, which is now managed by an insolvency professional pending resolution of its debt, is seeking another approximately $140 million in loans to keep the firm running, and easing of restrictions imposed by lenders on the use of funds, according to reports.

Along with Tata Steel, South Korean steel manufacturer Posco, too, may enter the fray to bid for the debt-ridden Essar Steel, currently facing proceedings under the Insolvency and Bankruptcy Code, according to merchant banking sources close to the development.

Posco India Chairman and Managing Director Gee Woong Sung was noncommittal when contacted by some reporters, saying his company did not have a formal position on the issue yet.

At present, Posco has a cold rolling and galvanizing project in the province of  Maharashtra, with a capacity of 0.45 millions ton for coated steel and 1.8 million tons for cold rolled steel. The unit supplies products largely to automotive customers.

The RBI is ready with a second list of defaulters to be referred to the NCLT under the Insolvency and Bankruptcy Code. The list is understood to have named of 35-40 companies which may have defaulted in loan repayments.

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In June, the central bank identified the 12 large stressed accounts accounting for 25% of the bad loans in the Indian banking system. This included: Essar Steel, Bhushan Steel, Bhushan Power, Alok Industries, Electrosteel Steels, Monnet Ispat and ABG Shipyard.

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