4 February 2019: Bhushan Power & Steel’s promoter, Sanjay Singal, has unveiled a last-minute bid to save his company from going under the hammer by offering creditors a proposal to repay their entire dues of Rs 47,151 crore.
The unexpected turn of events comes a day before a judgement is expected in one of the keenly watched insolvency proceedings that began 18 months ago.
Tata Steel, JSW Steel and UK’s Liberty House are vying for the asset which initially generated tepid interest, but has since become a hotly contested one following an operational turnaround that saw capacity utilisation of 90% and sales growth over the past six quarters.
A majority of its lenders had voted in favour of JSW Steel’s offer of Rs 19,300 crore for the company in mid-October.
An appellate bankruptcy court is likely to pick the winner on Monday.
Singhal has become the second promoter after the Ruias of Essar Steel to make such an offer post the introduction of the Insolvency and Bankruptcy Code (IBC), considered a remedy for the ballooning bad debt problem in the banking industry.
In a formal January 29 letter to the two main creditors of the company, State Bank of India and Punjab National Bank, Singhal sought the withdrawal of the insolvency proceedings invoking provisions of Section 12 A of the IBC — it allows for the withdrawal of such proceedings if an expression of interest has not been issued to a prospective buyer. ET has seen a copy of the letter.
His proposal seeks conversion of Bhusan Power’s debt of Rs 47,151 crore from banks into cumulative redeemable preference shares, to be issued to the lenders which they can start redeeming from the beginning of next year.
Singhal promised payment to operational creditors over a period of three years and said claims that were disputed in courts would be cleared once they had been adjudicated upon by the courts. He also promised full payment of arrears to the government, workers and of statutory dues.
A State Bank of India spokesperson said in response to ET’s queries: “It is a policy of the bank not to comment on individual accounts and its treatment.” PNB and Singhal did not respond until press time Sunday to ET’s questions. Mahender Khandelwal, the bankruptcy court-appointed resolution professional for Bhushan Power, said “the matter is sub judice” and declined to comment further.
In his letter, Singhal cited a recent Supreme Court judgement and argued that withdrawal of proceedings was accepted in certain exceptional cases, such as of Brilliant Alloys, even after an expression of interest was issued to a prospective suitor.
He stated that the resolution process was still active as a ruling by the bankruptcy court was still awaited in a dispute between two of the bidders, Tata Steel and Liberty House. “As such, there is no delay and the present proposal under Section 12 A of the insolvency and bankruptcy code is well within time,” he wrote.
Blaming external factors such as cancellation of coal blocks by the top court in 2014 that forced the company to import coal at three times the price, dumping of steel by China and a slowdown in the domestic steel industry during 2014-2017 for the woes at the company, Singhal urged the lenders to consider his proposal claiming that it was in “public interest” and “seeks to meet the objective of maximisation of value”.
Ruias’ proposal to offer a full settlement to Essar Steel’s lenders by repaying Rs 54,000 crore, more than that offered by ArcelorMittal, was recently turned down by the bankruptcy court. The Ruias are widely expected to challenge the decision at an appellate tribunal.
In his letter accompanying the proposal, Singhal claimed that he was “one of the few industrialists who took the business risk for the nation at large … when other much-bigger business houses were disinterested in setting up the plant”, referring to his decision to build a steel factory in a backward district of Odisha 17 years ago.
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