Deutsche Moves to block ArcelorMittal’s takeover of Uttam Galva

Industry:    3 months ago

Deutsche Bank has moved the National Company Law Tribunal (NCLT) to block ArcelorMittal’s ₹4,000-crore takeover of Uttam Galva Steels under the Insolvency and Bankruptcy Code (IBC).

The lender has claimed that it has been wrongly excluded from the insolvency process by Uttam Galva’s resolution professional, who has not recognised Deutsche’s outstanding claims against the company, according to people aware of developments.

ArcelorMittal’s resolution plan, which was submitted by Uttam Galva’s resolution professional in June 2021, is pending before the bankruptcy tribunal. The LN Mittal-owned steelmaker formerly held 30% in Uttam Galva and is the only bidder for the company.

According to court submissions by Deutsche Bank, it was part of a tripartite arrangement involving Uttam Galva Steels and its supplier Mitsui, assuming the role of a financier of the trade between them.

Letter of Credit
The German lender claimed that it was asked to step in when a letter of credit issued by Punjab National Bank (PNB) devolved in 2014. The letter of credit was on behalf of Uttam Galva to Mitsui, guaranteeing payment for purchase of goods. After the Indian steel company defaulted, Deutsche paid PNB, which in turn paid off the Japanese company, as per the bank’s submissions.

Deutsche Bank alleged that Uttam Galva has not made good its end of the bargain and remains in default to the tune of $14 million. It has claimed that there are records to prove it was paid interest for the financing of the trade with Mitsui, thereby giving credence to its claim of being a financial creditor of the company.

Deutsche Bank said in court that Uttam Galva Steels has never disputed the claim and the lender has persistently followed up with the company over the years.

NCLT has sought records of the books of accounts of Uttam Galva Steels for 2015-16 to 2019-20 to verify Deutsche Bank’s assertions.

Deutsche Bank declined to comment. ArcelorMittal, Mitsui and Milind Kasodekar, the resolution profession of Uttam Galva, did not respond to queries.

Stake Sold Back

In 2018, when ArcelorMittal’s bid for Essar Steel was being considered, the Supreme Court had ruled that the Luxembourg-headquartered company would have to clear all non-performing loans of companies where it had stakes.

ArcelorMittal had subsequently cleared dues of many lenders of Uttam Galva Steels and become its largest creditor. It also sold its 30% stake back to Uttam Galva’s promoters, the Miglani family, to be eligible for the Essar Steel bid.

In October 2020, State Bank of India initiated insolvency proceedings against the Indian steelmaker as it continued to have certain outstanding exposures, which eventually became non-performing assets.