Union Bank of IndiaBSE -1.00 % and Bank of BarodaBSE -0.24 % have called off a deal to sell Bhushan SteelBSE 1.22 % loans to SSG Capital-backed Assets Care & Reconstruction Enterprise (Acre ARC), two bank officials said.
While the development has come up amid reports of Tata Steel making a Rs 35,000-crore offer to acquire the stressed company, the officials said the banks took the decision following government instructions that lenders “should adhere to the spirit of the Insolvency and Bankruptcy Code” while entering into loan transactions, particularly when a company is referred to the bankruptcy court.
Three days after the process to auction insolvent Bhushan Steel had started, the two banks entered into a deal to sell their loans to the company. Bank of Baroda was aiming to sell Rs 1,288 crore of loan, while Union Bank of India had on block Rs 1,200 crore. Deutsche Bank emerged as the highest bidder for the loans through an e-auction and wanted to down-sell it to Acre ARC.
In response to ET’s questions, Bank of Baroda said it had not entered into any agreement with any bank or financial institution, including Deutsche Bank, in connection with the sale of its loans to Bhushan Steel. Union Bank declined to comment. If these two banks had sold their loans to Acre ARC, it would have changed the composition of the voting rights within the lenders’ consortium, which is very critical in getting a resolution passed. As per rules, at least 75% of lenders should vote in favour of a resolution to pass.
If the deal with these two banks had gone through, Acre ARC would have become the third largest lender with total loan outstanding of Rs 3,118 crore to Bhushan Steel. A couple of months ago, it acquired Rs 630 crore of loans from Indian Overseas Bank. State Bank of India has the highest exposure at Rs 12,878 crore, followed by Punjab National BankBSE -1.45 % at Rs 4,905 crore.
