The 2008 Hollywood movie, The Curious Case of Benjamin Button, chronicles the story of a man who reverse-ages. He starts out as an old and then becomes younger as years pass by. In a way that is what Essar Group reminds of today! A group that had almost given up on all its businesses has suddenly come back to claim its rightful place in the pantheon of Indian family businesses. But first the Essar Steel controversy!
What happened to Essar Steel?
With an unsustainable debt burden of over Rs.50,000 crore, there was little choice for Essar but to go into IBC bankruptcy resolution. After several rounds of bidding and several rounds of disqualifications, it was Arcelor Mittal that had emerged as the highest bidder at Rs.42,000 crore. Even as the Committee of Creditors (COC) agreed to the offer, Essar has made a counter offer. In fact, the promoter group has now agreed to buy out the company for Rs.54,000 crore that would not only full pay the dues of the banks but also the operational creditors. While the COC and the NCLT have expressed doubts, there are two things that are going in favor of Essar. There is a precedent of Ruchi Soya promoters being involved in the bid meetings and Essar may be entitled to demand the same. Secondly, the entire NCLT had been skewed against operational creditors. That could be a very smart and critical card for Essar Group to play.
Should Essar get a chance?
The moot issue is whether the NCLT should go rigidly by rules or should it consider the larger interests of the stake holders. Here stake holders include the banks and the operational creditors. Frankly, there are not clear answers but considering that the NCLT process is still evolving, the Essar Group may actually justify being given another chance. Also, it addresses the very critical issue of banks versus operational creditors. Also, many smaller banks in the consortium have often complained that the larger banks tend to dominate decision making in the consortium. That too can be addressed. Even as it goes against the grain of bidding, the Essar promoters may actually deserve a chance.
Where does the money come?
That is actually the million dollar question. If Essar had the money, then why did they not pay the creditors and avoid the NCLT altogether? But there is also a new twist to the tale. ICICI Bank and IDBI want to invoke the personal guarantees given by Essar promoters for their outstanding dues pertaining to Essar Power. If that were to happen then the ability of Essar promoters to bring in the requisite funds will be seriously compromised. The moral of the story is that Essar is likely to be a complex case study. For the NCLT process and for industry, there could be some sharp learning value! ©