One of the country’s biggest bankruptcies to go under the hammer is finally moving towards closure. Yesterday, Tata Steel said that “it has received a formal communication from the resolution professional [RP] of Bhushan Steel Ltd that it has been identified as the highest evaluated compliant resolution applicant to acquire controlling stake” of the beleaguered company under the Insolvency and Bankruptcy Code 2016. The company statement added that the Committee of Creditors (CoC) of Bhushan Steel had taken the decision at a meeting on March 6, and the next steps will be as per the stipulations under the Corporate Insolvency Resolution Process. The advisors to the CoC and the RP are currently in discussions with Tata Steel on the resolution plan.
Although Tata Steel did not disclose the financial details of the acquisition bid, two people close to the bidding process told Mint that the company has offered close to Rs 34,800 crore as upfront payment to banks and an additional Rs 1,200 crore to the operational creditors. In addition, Tata Steel has also offered 12% equity stake to lenders in Bhushan Steel, who were owed Rs 44,478 crore. The rival bidder for this asset, JSW Steel, had reportedly offered around Rs 29,000 crore. Reacting to the news, Bhushan Steel’s share price had spiked 12 percent since closing price yesterday, but is now headed downward again.
Bhushan Steel was on the RBI’s first list of 12 companies to be referred to the National Company Tribunal Law (NCLT). With an annual capacity of 5.6 million tonnes, its website claims that it is the third largest secondary steel producer in the country. This explains why the auction had seen such aggressive bidding – well over the liquidation value reportedly pegged at Rs 20,000 crore.
If the deal goes through, this asset will not only help Tata Steel tighten its grip on the country’s eastern region but perhaps also help it to snatch the title of ‘India’s largest steel maker’ from JSW Steel. According to advisory firm Bonaz Capital, the acquisition would help it to increase domestic steel capacity by around 43 percent to 18.6 million tonnes per annum. “We expect the company to report revenue CAGR of 5.3 percent over FY17-20E [expected] aided by 6.1 percent volume growth in domestic steel production…EBITDA margins are also likely to expand by [around] 573 bps owing to better utilization for Tata Steel India,” it added.
This announcement will also bring much relief to fraud-ravaged Punjab National Bank, as it was the term loan consortium leader for Bhushan Steel. In fact, PNB reportedly had an exposure of close to Rs 5,000 crore, much of which will now come back to coffers and help it to partly offset the damage allegedly wrought by Nirav Modi over the past seven years.
Meanwhile, Tata Steel has also submitted a bid for Bhushan Power and Steel Ltd. According to media reports, if it manages to pull off this double coup, Tata Steel will grab half the market share for flat-steel products in the country.
