The NCLT Ahmadabad bench has given its verdict on the Essar Steel case and it has gone in favor of Arcelor Mittal. Notwithstanding the fact that the Essar promoters were willing to pay a higher price for Essar Steel, the NCLT bench has decided in favor of Arcelor Mittal. So, Essar Steel will now be part of Arcelor group for a consideration of Rs.42,000 crore. First the background!
How the Essar case unfolded
After the bidding was completed and Arcelor had emerged as the winning bidder, the Essar promoters decided to put in a much higher bid. The Ruias bid was at Rs.54,389 crore against the Arcelor bid at Rs.42,000 crore. In fact, Essar Steel would have been technically able to pay not only the financial creditors without haircuts but also the operational creditors. That was the reason many operational creditors of Essar had openly come out against the Arcelor bid. The final decision is subject to review but it virtually means that the company now gets sold to Arcelor. For Arcelor, it gives access to another 10 million ton steel mill in the fast growing Indian market. After all, the steel industry is expected to see demand tripling by 2030 and that is what most of the NCLT buyers are currently betting on. Also, this will be the biggest single bid under NCLT; larger than the Rs.35,000 crore bid for Bhushan. The decision to prefer Arcelor over the Ruias is not only justified but also tenable.
Arcelor is right; Ruias are wrong
The technical difference between the Ruia bid and the Arcelor bid was that the latter was through the normal NCLT process. One of the core purposes of NCLT was to expedite and so delaying it indefinitely would defeat the purpose. The Essar case had already exceeded the 270 days time limit. Secondly, if the Ruias really wanted to pay off the debts, they could have done it during the settlement period or privately had talks with bankers to resolve the issue. The NCLT bench is right in the sense that once the NCLT choice is opted for, then it must be respected. Also, NCLT cases must not become an opportunity for defaulting promoters to gain entry into their company through the back door at a lower investment. That is not done!
Issues of corporate governance
The NCLT had already received flak in the Binani Cements for having allowed Ultratech to come in later. NCLT deals should strictly prevent any negotiated between promoters and potential buyers. That defeats the purpose of NCLT, which is based on transparency. If parties are allowed to cut deals outside the purview of NCLT, it is likely to largely undermine the entire process. The Ruias deserve to lose control of Essar Steel as they have over the years raised billions of dollars from banks and capital markets and defaulted on them. That surely leaves a lot to be desired! ©