JSW Steel’s higher offer to complete the Bhushan Power and Steel Ltd (BPSL) bankruptcy resolution is a part of a compromise formula being worked out by lenders and the Sajjan Jindal led steel company to ensure that the more than three-year-old transaction finally moves forward, multiple people involved in the negotiations said.
The bone of contention in the discussions is the Rs 1000 crore cash flows BPSL has generated between March and now which both parties do not want to let go. Also on the table is JSW’s demand for an indemnity bond or a guarantee from lenders promising to return the full amount paid by JSW if the Supreme Court (SC) order goes against the company. The court is hearing a case involving the Enforcement Directorate (ED) investigation into allegations of fraud against the erstwhile promoters of BPSL. The ED is arguing that the new promoters of BPSL cannot be discharged from any prior liability of offences committed by the corporate debtor.
All these points are part of negotiations between the lenders and JSW.
“This is a compromise formula being worked out. Technically the insolvency resolution period ended in March which was when the company was given to JSW but the litigation has delayed matters. The initial RFP is silent on what happens to cash flows generated by the company when the resolution period is over. Instead of fighting over it, JSW has put this proposal forward,” said one of the persons involved in the negotiations.
JSW is offering another Rs 450 crore over and above the Rs 19,350 crore it has offered financial creditors. The company had bid Rs 19,700 crore for the 3.5 million tonne steel plant pipping Tata Steel’s Rs 16,000 crore offer and was declared the winner by NCLT in September 2019. The additional offer will take the total bid amount by the company to Rs 20,150 crore of which Rs 350 crore will go to operational creditors. The company did not reply to an email seeking comment.
“An indemnity bond by lenders to JSW is also under consideration promising to give back the money in case the SC ruling is adverse. Similarly JSW is also considering signing a bond promising to give back the company to creditors if the deal does not go through,” said another person involved in the negotiations.
The SC has not stayed the resolution process so far and the next hearing is only in January so both JSW and lenders want to ensure that they do not waste any time.
BPSL was among the 12 large cases referred to bankruptcy courts by the RBI in 2017. The company owed lenders Rs 48,000 crore. Though under the terms under negotiations lenders still will take a 58% haircut the Rs 20,150 crore recovery could be the largest in some time as banks are struggling to recover bad loans due the economic recession caused by the Covid 19 pandemic.
With an improved offer JSW wants to capitalise on the two year high steel prices adding 3 million tonnes to the 18 million tonne existing capacity.
“It will take time since there are 36 creditors and many of them who need an okay from their headquarters to go ahead. But both parties are willing to move ahead which is a good sign,” said the first person quoted above.
The core committee of creditors consists of lead bank Punjab National Bank (PNB), State Bank of India (SBI) and Acre ARC. They own more than 40% of BPSL’s debt.
