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18th of November 2018

Economy



NuMetal a shell firm, ineligible for Essar Steel bid: ArcelorMittal to SC

Steel and mining firm ArcelorMittal on Thursday told the Supreme Court that its rival bidder NuMetal was not eligible to bid for Essar Steel on several grounds, including that it was a "shell company" created by a firm in which Essar group promoters had majority shares.

ArcelorMittal India (AMI), the steel tycoon L N Mittal-promoted group which has made a bid of Rs 420 billion for Essar Steel, raised various objections before a bench of Justices R F Nariman and Indu Malhotra regarding the eligibility of NuMetal to bid for the debt-ridden Essar Steel and alleged that Arora Enterprises Ltd (AEL), whose majority shares were with Rewant Ruia, had created Numetal.

NuMetal, a consortium of Russia's VTB-JSW, has also filed an appeal challenging the National Company Law Appellate Tribunal (NCLAT) order allowing ArcelorMittal to take part in the bid and alleged that the firm stood disqualified due non-deposition of the money.

The NCLAT had asked ArcelorMittal to clear the stigma of defaulter by clearing the dues of Uttam Galva Steel and KSS Petron in which it had shares.

It had ruled that NuMetal's second bid for Essar Steel was eligible but the same by ArcelorMittal will qualify only if it cleared the Rs 70 billion dues of the two firms it was previously associated with.

Continuing his arguments today, senior advocate Harish Salve, appearing for ArcelorMittal, referred to the Insolvency and Bankruptcy Code and alleged that Rewant Ruia, a relative of the Essar Promoters, had exited from NuMetal to circumvent the eligibility criteria to bid for Essar Steel, against whom bad loans had swelled to the tune of Rs 500 billion.

He said that AEL, which had created NuMetal, and in which Rewant Ruia had majority shares, paid Rs 5 billion as earnest money to bid for Essar Steel.

"The earnest money of Rs 5 billion was deposited by AEL. Ruia puts in money and now says that he has no relation with it, as he is now out... see the generosity of this gentleman," Salve said, alleging that NuMetal was "a shell company of Ruias".

"The whole argument has been that Rewant Ruia is currently not related to the firm which has applied to bid for Essar Steel," he said, adding ArcelorMittal was willing to pay Rs 70 billion if Essar group agreed to pay Rs 500 billion to clear bank dues.

At this, the bench asked "your point is Ruias are circling back to get the company (Essar Steel)."

"Are you (AMI) disqualified, is the threshold question," it said, adding "as per your argument, the issue of payment of Rs 70 billion does go to the root of AMI's eligibility to bid."

"Yes," Salve said, adding "ineligibility is not an open and shut case".

He said there was a co-promotion agreement between ArcelorMittal and the promoters of the Uttam Galva Steel and the former had divested its 29 per cent share and incurred losses.

As far as Rs 70 billion was concerned, it was lying in an escrow account at a SBI branch in London and moreover, ArcelorMittal had invested in Uttam Galva in 2009 under the co-promotion agreement and there was no management control.

"I invested in a listed Indian company. There was no a single director (of ArcelorMittal) on the board of Uttam Galva... I purchased and sold back the shares and still the stigma remains attached to me," Salve said.

ArcelorMittal wanted to exit Uttam Galva, but due to the agreement, it could not have sold the shares in open market and had to talk to the promoters of the Indian firm, he said.

ArcelorMittal had no director on Uttam Galva board, it did not give any bank guarantees, it had invested, but that did not render it ineligible, he said, adding no eligiblity can be fastened on the firm because of its investment in KSS Petron.

On the ineligibilty of NuMetal, he said there was "lack of transparency" and even adverse observations against VTB Bank of Russia which is the part of the bidding firm. The Russian firm has been investigated upon by the US Justice Department and restrained from raising capital from security markets at various places.

The advancing of arguments remained inconclusive and would resume on September 18.

Earlier, ArcelorMittal had assailed the order of the NCLAT asking it to pay Rs 70 billion to become eligible to bid for Essar Steel, saying it had already divested its shares in Uttam Galva Steel and KSS Petron, whose bad loans were directed to be paid by it.

It moved the apex court challenging the NCLAT order of September 7 by which it had held as eligible the second bid of NuMetal for Essar Steel.

Both the companies had in February submitted separate bids to takeover Essar Steel, which lenders were auctioning, to recover their Rs 490 billion defaulted loans.

The Committee of Creditors had, however, disqualified both the bids saying their promoters were tied to companies which were bank loan defaulters and hence ineligible under Section 29A of the Insolvency and Bankruptcy Code.

The second round of bids was called where JSW Steel joined NuMetal to put in a bid of Rs 370 billion, while Vedanta Ltd entered the fray as a third bidder. ArcelorMittal too had put in a bid.

The NCLAT had last week directed the lenders of Essar Steel to expeditiously take a decision on the bids.

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