ArcelorMittal has said that its association with Uttam GalvaBSE -4.38 % has no relevance in its bid for Essar SteelBSE 0.41 % since it had sold its stake in the former before putting in an offer for the latter. The company also said that Uttam Galva was not consolidated on the balance sheet of Arcelor-Mittal and represented approximately 1% of its investments in associates.
While ArcelorMittal was disqualified on technical grounds that its declassification was not notified on the stock exchanges at the time of the bid, a point being challenged in the courts, the global steel major said that it remains confident of the eligibility of its bid. In a prospectus released at the time of its $1-billion bond offering in October 2010, ArcelorMittal had stated that on September 3, 2009, it signed a share purchase agreement with the RK Miglani family, the existing promoter of Uttam Galva, for the acquisition of a 5.6% stake in Uttam Galva.
“On September 4, 2009, ArcelorMittal signed a co-promotion agreement with the R K Miglani family and Uttam Galva in order to become a co-promoter of Uttam Galva and to obtain broad joint control rights. Subject to 29.4% of Uttam Galva’s shares being tendered in the offer, ArcelorMittal will hold 35% of the equity in Uttam Galva. The completion of both of these agreements is subject to customary approvals,” the prospectus said. Uttam Galva itself later turned into an NPA and ArcelorMittal’s association with it was subject to scrutiny under bankruptcy laws during the bid for the debt-laden Essar Steel. Legal circles are divided on this issue.
Shan Bottlewala, Partner-Juris Corp, who heads the firm’s IBC practice said: “The (Uttam Galva) debt may have been taken before he (Mr. Mittal) came in as an investor. It has to be seen how much debt was taken after he came in. These things can be revealed in a forensic audit.
However, Mr. Mittal’s business model is based on picking up stressed assets and turning them around….We cannot call him a defaulter who will purposefully run away. Here, the spirit of the law has to be kept in mind. It seeks to prevent mala fide promoters from bidding.” Another legal expert ET spoke to said that the law clearly says a promoter associated with a defaulting company can participate in a bid only if he repays the debt. Arcelor decided to sell its entire stake in Uttam Galva through an inter-se transfer of shares among promoters.
