One of the primary changes that the Modi government has introduced was the insolvency and bankruptcy code though there are other significant changes. However, it is the Electrosteel Steels Ltd. that earned the first to get its stressed accounts resolved under the new code. This meant that Vedanta Ltd. could acquire the company with the blessings of the National Company Law Tribunal (NCLT). There are eleven more companies that have big stressed accounts and waiting to be resolved. This is a significant step towards reforming the industrial sector that has been waiting for years before.
The process of Taking Over
Vedanta group chairman Anil Agarwal has confirmed to Bloombergquint in an interview that the group would be looking forward to completing the formalities of taking over process as quickly as possible. He also assured that the company would not spare any efforts to turn around Electrosteel Steels Ltd. The company was one among the 12 big companies’ accounts identified by the Reserve Bank of India in June last year for resolution under the new law.
The Indian company has owed over Rs.13,000 crores to the lenders. Of this, Electrosteel Steels owes State Bank of India alone approximately Rs.5,000 crores based on the data available in its portal. This apart, the company also owes Rs.191.6 crores to operational creditors. Resolution professional, Dhaivat Anjaria, acknowledged this to media. The professional was advised by Shardul Amarchand Mangaldas, a law firm, in the case. As far as the firm, its banking and finance head, Sapan Gupta, led a team.
The acquisition would not have been possible but for the lenders agreeing to reduce the outstanding debt. Lenders have agreed to a 55 percent haircut on the remaining debt. Vedanta Group was the highest bidder for Electrosteels Steel by quoting Rs.4,500 crore for the company and emerged as the winner. This was reported way back in January itself based on unidentified persons’ disclosure.
The advantage that Vedanta group saw in acquiring the company was the location of the assets in Jharkhand, a Northern part of India. Since Agarwal’s firm already has one of his iron mines, the company’s chairman felt that it was a perfect match. The objective of foraying into the steel sector is to convert its iron ore from its own mine as a more profitable unit.
Importer of Iron Ore
During the earlier interview, Agarwal pointed out that India is a net importer of iron ore. Therefore, the country encourages miners to sell in the domestic market rather than focus on the export market. As such, Vedanta Group believes that it would produce to convert into steel before the sales. He cited the examples of BHP Billiton and Rio Tinto to back his arguments as the two companies do not have any steelmaking assets.
However, in India, if there are iron ores, then it could be used as captive mine for producing steel. Agarwal also lined up his plans in the next three-year period involving an investment of about $8 billion.
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