Board and shareholders of Essar Steel offer to make payment aggregating Rs 54,389 crore to creditors of all classes under Section 12A of IBC to withdraw Company from corporate insolvency resolution process
Oct 25th, 2018
- Proposal submitted to Committee of Creditors (CoC) under Section 12A of the Insolvency & Bankruptcy Code (IBC), 2016
- Will lead to full upfront recovery of loans for the lenders, and maximum recovery for all other classes of creditors
Mumbai, 25 October 2018: The shareholders of Essar Steel have today submitted a proposal to the Committee of Creditors (CoC) for full settlement of the entire admitted claims of the financial creditors, operational creditors, and workmen and employees of Essar Steel India Ltd (ESIL), aggregating Rs 54,389 crore, under Section 12A of the Code. The aforesaid plan includes an upfront cash payment of Rs 47,507 crore to all creditors, including Rs 45,559 crore to the senior secured financial creditors, i.e. 100% recovery. The CoC is empowered to consider and approve this Settlement Plan with the requisite voting share, on the basis of which the corporate insolvency resolution process against ESIL may be withdrawn.
While the resolution plan currently under the CoC’s consideration takes care of only the secured creditors (i.e. the banks), by offering this settlement, the shareholders of ESIL are ready to pay up the entire dues that will lead to not only maximum recovery for the lenders, but also for all other classes of creditors, thus taking the Company out of the corporate insolvency resolution process under Section 12A of the IBC, which was introduced in June 2018 by way of an amendment. If the CoC were to accept the resolution plan currently under consideration, it will have to settle for a sizeable haircut. Moreover, the offer does not provide for meaningful payment to operational and other unsecured creditors.
Commenting on the proposal, Mr Prashant Ruia, Director, Essar, said: “Essar Steel got into difficulty because of external factors. Regardless, the value and quality of the asset can be ascertained from the interest shown and value offered by all the global steel majors. It has been our constant endeavour to arrive at the best resolution for all stakeholders of ESIL. In fact, even after the onset of the insolvency resolution process, the shareholders of Essar Steel had made offers to settle the debt of the company, but the lenders did not accept those offers. We believe our current proposal will provide 100% recovery to secured creditors and lenders, and maximum recovery for unsecured creditors. This is well in excess of that offered in the proposal under consideration, and is in line with value maximisation, which is the underlying principle of the IBC process.”
Why did Essar Steel go into NCLT?
- Cancellation of supply of natural gas, which is the main raw material for ESIL, by the Government despite the Company having a firm gas allocation from the Ministry of Petroleum and Natural Gas (MoPNG). This led to idling of 65% of plant capacity and no compensation was offered for the loss.
- Repeated damage by insurgents to the Vizag slurry pipeline that carries iron ore fines to the ESIL plant. This led to huge disruption in raw material supply and significant losses because of increase in cost of raw materials.
- To fund the losses on account of the above, Essar promoters infused an additional corpus of approximately Rs 8,000 crore over and above the contributed equity of Rs11,000 crore
- Even in the period of financial stress, Essar Steel honoured its interest obligations of Rs 12,000 crore mainly by the aforesaid fund infusion by the promoters.
- Essar Steel successfully mitigated the aforesaid challenges and thereafter a restructuring plan was agreed with the lenders in December 2016. Despite this, the company was referred to the IBC by RBI, an action that Essar strongly contested.
Essar promoters have invested and created world class assets
- Essar has invested over Rs 120,000 crore — one of the largest by any corporate in India — in building Greenfield and world-class businesses across the sectors of Energy, Infrastructure, Metals & Mining, and Services.
- Over the last one year, the Group has repaid debt of Rs 80,000 crore, and by this proposal plans to repay another Rs 45,000 crore of debt (at no loss to the lenders), thus cumulatively repaying Rs 125,000 crore of debt (which is 75% of group debt), which again is the largest by any Indian corporate
- The Group has attracted FDI of US$32.8 billion by bringing in world-class partners, such as Vodafone, Rosneft, American Tower Corporation, etc. over the last decade.
Background of Essar Steel
Essar Steel is among the largest single location steel producers with a 10 MTPA liquid steel capacity. World class end to end integrated facilities comprising of Hot Rolling Facilities, Cold Rolling Facilities, Plate Mill etc., with latest state of the art technology located in Hazira, in the western coast of Gujarat. The downstream processing and distribution capacity of 4 MTPA strengthens the end to end integration of the steel plant. ESIL also has Beneficiation and pellet making capacity of 20 MTPA spread across Vizag and Paradeep. ESIL employs approximately 4,500 persons directly and more than 30,000 people indirectly.
Manish Kedia, Senior Vice President – Corporate Affairs, Essar
Phone: +91 98197 30092, Email: email@example.com
Ravi Muthreja, Vice President – Corporate Communication, Essar
Phone: + +91 99301 34566, Email : Ravi.Muthreja@essar.com