The Ruia family, which owns the Essar Group, may have found a way to bid for Essar Steel Ltd.’s assets without facing any resistance from lenders or invoking a clause that requires them to first clear pending dues.
The bid is likely to come from a special purpose vehicle registered in Mauritius, two people close to the development told BloombergQuint. Russia’s VTB Bank will own 40 percent stake in this SPV while Hong Kong-based SSG Capital will own 30 percent. The remaining 30 percent will be held by a trusteeship based in Singapore, where Rewant Ruia – son of Essar co-Founder Ravi Ruia – will be the beneficiary.
Since Rewant Ruia doesn’t control the trusteeship, the bid would not be connected to any related parties, ensuring that it doesn’t violate the conditions set under the Insolvency and Bankruptcy Code, one of the two people quoted above said. Besides, since the current promoters will not actually end up owning the company, the requirement that promoters must clear pending dues to be eligible to bid for the asset may not apply, said the second person quoted above.
If the Ruias manage to place a bid for the company through a complex financial structure, it would become an important precedent for defaulting promoters finding ways to stay in the game even after insolvency proceedings are initiated. “It may be possible to create complex financial structures. After all, water finds its own level,” Jayesh H, founding partner at law firm Juris Corp, said without referring to any specific case.
While SSG Capital didn’t respond to queries sent to them, a spokesperson for VTB Bank declined to comment.
“We had submitted an Expression of Interest as part of the Corporate Insolvency Resolution Process. In the EOI, we had indicated that we intend to work together with VTB. Since then, the Govt. of India has come out with a new ordinance which necessitates a re-look at the bid itself. We are currently in discussion with our lawyers & VTB to decide on the way forward. No decision has been taken as yet,” an Essar Steel spokesperson said in an emailed response.
The spokesperson declined comment when asked to clarify whether the proposed structure would require the promoters to clear any pending dues or not.
The Economic Times had first reported that the Ruias are planning to bid for Essar Steel through an SPV with VTB Bank and SSG Capital.
In November, the government amended the new bankruptcy law barring promoters or connected parties from bidding for their own companies if the account had been a non-performing asset for more than a year. The change requires promoters to clear pending dues for being eligible to submit a resolution plan for any account under the insolvency process.
Essar Steel is one of the 12 large stressed corporate accounts which the Reserve Bank of India identified for immediate action under the insolvency law in June last year. The company owes lenders nearly Rs 55,000 crore, according to the information on its website, making it one of the largest accounts under insolvency action.
Satish Kumar Gupta, the resolution professional appointed in Essar Steel, refused to comment on the story. The last date for submitting bids is Jan. 29.
RECOMMENDED FOR YOU
POPULAR