18 March 2019: Creditors to Essar Steel are weighing three options, one of which might be put before an appellate bankruptcy court on Monday, as they seek to draw to a close the insolvency proceedings that have dragged on for about two years.
The options include asking ArcelorMittal to pay up the whole amount and keep the contentious payments to operational creditors in an escrow account or just comply with the suggestions made by the National Company Law Appellate Tribunal (NCLAT) in the last hearing on Friday.
“The third option is to stick to our stand that this is the agreed resolution and fight on, assuming further delays. All these options are being debated but there is no consensus as yet,” said a banker with knowledge of the internal discussions.
Lenders, especially those owned by the state, are under pressure to accept any solution suggested by NCLAT because they are desperate to close the long-pending case before the fiscal year ends . Meeting that deadline will allow them to write back against earlier provisions and escape higher ageingrelated provisions for the account. So, there is an outside chance that operational creditors may get a higher share of their dues than what now stands on paper.
The two-judge bench had on Friday asked creditors to consider giving operational creditors 10% of the total proceeds, up from 5% considered in the agreed plan. The bench also asked lenders to consider giving Standard Chartered more of the dues than what is proposed now, suggesting a pro rata formula be applied for all financial creditors.
If lenders agree to both these suggestions, total amount they can expect would drop to Rs 34,000 crore of the Rs 42,000 crore proposed by ArcelorMittal as operational creditors will get Rs 5,000 crore and Standard Chartered will get Rs 3,000 crore, the banker cited above said.
“Raising the proportion for operational creditors could be considered but accommodating Standard Chartered looks difficult at this stage as it does not have a first charge over the asset,” said another executive involved in the deliberations.
Standard Chartered was to get just 1.7%, or Rs 60 crore, of its Rs 3,500-crore dues because unlike Indian banks, it had not lent to the parent company but its subsidiary and did not have first charge on its assets. The bank had taken the company’s shares as collateral that hold no value.
Four creditors with the largest exposures, namely Edelweiss ARC, State Bank of India, IDBI Bank and ICICI Bank, have formed a core committee to take the decision on behalf of lenders as the committee of creditors (CoC) has been technically dissolved after a decision to award the bid to ArcelorMittal was taken.