State Bank of India (SBI) has put its entire loan exposure to debt-laden Essar Steel Ltd worth Rs 15,431 crore (around $2.2 billion) on the block.
Asset reconstruction companies (ARCs), non-banking financial companies (NBFCs), banks and financial institutions are eligible to place bids, according to information on the website of the country’s largest public-sector lender.
The minimum reserve price for the loans has been set at Rs 9,587.64 crore on the basis of NPV (net present value) of minimum recovery, discounted at 18% and pricing in a one-year period for the deal to close, the auction notice said.
As per the resolution plan of steel giant ArcelorMittal, the minimum recovery to SBI is Rs 11,313.42 crore.
The resolution plan was earlier approved by Essar Steel’s Committee of Creditors led by SBI.
The second-largest exposure to Essar Steel lies with Edelweiss Asset Reconstruction Company Ltd, with claims worth Rs 5,352 crore admitted.
A senior official with Edelweiss ARC who did not wish to be named said the company was yet to evaluate the auction but it is unlikely that they will participate as it “requires a huge investor and the sale is on a cash basis with a meagre discount given the business we operate in”.
SBI has also inserted a claw-back option in the auction notice, where if the resolution happens in less than a year, the discount could be reduced and the entity buying these loans would have to pay more to the lender.
To be sure, the sale of loans by a lender to any other entity only replaces a lender in the committee of creditors (CoC) while the resolution process continues.
Surprise sale
SBI’s decision to sell these loans is being seen as a surprise as Essar Steel is in the final stages of debt resolution after the bid by top bidder ArcelorMittal was approved by the Committee of Creditors (CoC) after a prolonged insolvency process. The plan was submitted in October and is now awaiting the final nod from the NCLT.
“SBI may not be expecting the resolution plan to close in the March quarter and it may want to claim more recoveries in this financial year ending March 2019,” said a member of the Committee of Creditors who wished to remain anonymous.
Email queries sent to SBI chairman Rajnish Kumar seeking further details did not receive a response till the time of publishing this report.
As things stand, Essar Steel’s debt resolution plan was approved by the CoC in favour of ArcelorMittal in October but is facing considerable legal delays after the company’s promoters, the Ruias, offered to repay Rs 54,000 crore — more than 100% — of the loans due at the last minute.
Essar Steel owes around Rs 49,000 crore to over a dozen lenders. The approved bid of ArcelorMittal is an upfront payment of Rs 42,000 crore with an additional Rs 8,000 crore equity infusion into Essar Steel to support operational improvement.
After the approval, bankers and other lenders have left the decision to the insolvency court for the final resolution plan. Several operational creditors have also filed cases seeking relief.
Earlier this month, the National Company Law Appellate Tribunal (NCLAT), in an oral order directed the Ahmedabad bench of NCLT to expedite the Essar Steel insolvency case.
