11 February 2019: State Bank of India’s attempts to sell Rs 15,431 crore in loans given to Essar Steel Ltd. have not seen much success so far. Only one interested bidder has come forward for a small portion of the loans on offer, two people in the know told BloombergQuint.
According to the people quoted above, Bank of America Merrill Lynch was the sole bidder to submit a bid for Rs 1,900 crore worth of Essar Steel loans. The American bank is said to have offered a little over Rs 1,400 crore, or about 70 percent of the book value, in cash as part of its bid, the people said.
Bank of America Merrill Lynch and SBI did not immediately respond to queries mailed to them.
The limited interest from bidders is discouraging for banks who are keen to sell loans to distressed firms where a resolution plan is taking time to materialise. According to the first person quoted above, the stressed asset market does not have a huge appetite for these loans at this point. As such, SBI may need to keep trying to sell smaller tranches over a longer period of time.
SBI had first put these loans on sale on Jan. 16, seeking bidders from the asset reconstruction industry, banks, non-banking finance companies and other financial institutions. Since then, SBI changed the deadline for sale twice, finally settling on February 11 as the final date for inviting bids. The deadline for the sale was changed after receiving requests from interested bidders, SBI had said earlier.
SBI has received special dispensation from the Reserve Bank of India (RBI) to maintain 50 percent provisioning in the Essar Steel account, the bank’s management had said on the sidelines of its earning release on Feb.1. If SBI is not able to sell all these loans by March 31, it may have to set aside more provisions for the account, as per the asset classification norms set by the regulator.
This was also the first sale to have introduced a ‘claw-back’ option, where the buyer of the loans would have to pay more to SBI if the asset gets resolved in less than a year from the date of loan purchase. The sale document by SBI showed that the lender had split the entire loan amount into seven parts, depending on the type of loan. The document allowed SBI to sell the loan as a whole or in parts.
Essar Steel is currently being resolved under the Insolvency and Bankruptcy Code (IBC). While the committee of creditors has approved a resolution plan submitted by ArcelorMittal, a final approval from the Ahmedabad bench of the National Company Law Tribunal (NCLT) is awaited. The case has been facing considerable delays due to repeated litigation from promoters and operational creditors.
Under ArcelorMittal’s resolution plan, SBI was set to receive Rs 11,313 crore. However, India’s largest lender had offered to sell the entire loan at a reserve price of Rs 9,587 crore in order to receive money sooner. This works out to about an 18 percent discount to the amount of money that the bank would have received under ArcelorMittal’s plan.