The Delhi High Court on Tuesday ordered a stay on the Srei Finance-owned fund selling majority stake in Odisha Slurry Pipeline Infrastructure (OSPIL) to Numetal— a joint venture between Russia’s VTB Bank and a Ruia scion —triggering an offer from the JV to refinance the loans extended by the “dissenting lenders.”
The ownership of the slurry pipeline — which is an integral part for running Essar’s steel plant efficiently —is under dispute for the last two years with banks claiming it as a critical part of Essar Steel. The issue assumes significance in the backdrop of Essar SteelBSE 0.41 % facing bankruptcy proceedings. On Monday, the last date for receiving bids for Essar Steel, the resolution professional received two bids – Arcelor-Mittal and Numetal. Numetal reacted to the development saying it would a approach lenders in due course with its proposal to acquire a controlling stake in OSPIL. However, in case they were not satisfied, Numetal said it would step in to help OSPIL refinance its lenders, a move it said would no longer make it necessary to get lender approval for the deal.
Responding to ET’s query, a Numetal spokesperson in an e-mail response said: “In due course, we will approach all the existing lenders of OSPIL for their consent for the proposed purchase. We are confident that lenders will be happy to have us as the controlling shareholder after they have understood our proposal. In the event that they are not comfortable, we are prepared to assist the company in refinancing any dissenting lenders, in which case their consent will no longer be required.”
An ArcelorMittal spokesperson said the company would not be commenting on the Delhi High Court order. A source close to ArcelorMittal said having submitted the bid only yesterday (Monday, February 12) the company would like to wait and watch for further developments.
After submitting the bid, Arcelor chairman L N Mittal expressed optimism about the Indian steel industry and said his company has submitted a detailed plan that would address many of the operational issues that dragged Essar Steel into bankruptcy. Industry watchers said the fact that Arcelor had submitted its plan despite reports of Numetal –OSPIL agreement was an indication of its confidence about the bid.
ET reported on February 9th that Numetal Mauritius, which has Russia’s VTB Bank as its largest shareholder and Rewant Ruia, as a minority shareholder had signed a binding agreement with India Growth Opportunities Fund floated by Srei Infrastructure to buy 70% equity in Odisha Slurry Pipeline Infrastructure. Following this, banks led by State Bank of IndiaBSE -1.63 % had moved the Delhi High Court seeking an injunction on this transaction.
OSPIL owns a 253-km slurry pipeline which moves half of Essar Steel’s iron ore. In the absence of the pipeline, it would cost Essar Steel an additional Rs 1,300-2,000 crore to transport some 10 million tonnes of raw material to its plant annually. It will also be difficult for any new player to operate the Essar Steel plant at Hazira without access to the pipeline.
Shashi and Ravi Ruia, the founder promoters of Essar Steel have been barred from bidding for the company since rules prevent defaulters from participating in submitting resolution plan. Essar Steel faces claims of Rs 49,000 crore from financial lenders and Rs 23,000 crore from operational creditors. Nearly one-fourth of the claims from operational creditors are from Essar group companies.
Essar Steel had in May 2015 monetised its 253-km slurry pipeline. OSPIL, part-owned by Srei Infrastructure, purchased it for Rs 4,000 crore, and the funds were used to service dues of lenders to Essar Steel.Essar had agreed to purchase 10 million tonne capacity on the pipeline for Rs 720 crore per annum.
