Promoters, suitors clash over bidding norms for steel companies

NEW DELHI: The fight between promoters of steel companies battling insolvency and suitors is intensifying over the bidding conditions being finalised by lenders to these beleaguered entities.

On Tuesday, Sajjan Jindal, CMD of JSW — seen to be among the most prominent Indian bidders — went public with his demand to keep “dubious promoters” and “wilful and non-cooperative defaulters” out, an issue on which lobbying has intensified over the past few weeks. JSW, along with Piramal-Bain, is vying with Tata Steel, Arcelor Mittal and Nippon Steel to acquire some of the steel companies.

“Dubious promoters should not be allowed to submit the rehabilitation plan to prevent misuse of IBC ( Insolvency and Bankruptcy Code). Also, the bidding criteria should be spelt out explicitly prior to inviting the bids. This will avoid likely litigation,” Jindal tweeted and followed up with several tweets tagging finance minister Arun Jaitley, law minister Ravi Shankar Prasad, the Prime Minister’s Office and the finance ministry.

Bidding norms being finalised by lenders for projects such as Essar Steel, Bhushan Steel, Bhushan Power and Steel, Monnet Ispat and Electrosteel are also being spoken in hushed tones. Facing the threat of being evicted from companies that they had set up, promoters are complaining that the norms are being drafted to favour Indian corporates looking to gain muscle overnight. “The norms are such as that companies will be transferred at 10-15% of the value like an entity facing liquidation. We had offered to take over half the debt and repay the rest over a 10-15 years,” alleged a promoter.


Promoters of the ailing companies are alleging that the bid conditions are still being drafted, while financial bids are due next month, leaving little time for them as well as overseas funds. Some overseas funds have held talks with a number of promoters but a window of one month is seen to be too narrow to work out the details.

Some of them are also complaining that a clause is being inserted that provides for a mandatory five-year lockin with the applicant holding a minimum 51% equity. This, they said, will deter funds, who typically have a shorter investment horizon, unless they partner with some of the steel companies which are bidding. “With fewer bidders in the fray, banks may not be able to realise the best value.”

Senior executives at some of the leading banks involved with the exercise told TOI that the idea for incorporating the clause was to keep vulture funds out, who take the company at a discount and run it for a few years and sell the stake at a premium. Besides, they said, banks want promoters to pay a premium if they want to stay in control of companies that have been facing financial distress for the past few years but lenders, led by state-run players, were refusing to take action till the government and the RBI cracked the whip.

The criteria being drafted by banks gives top billing to net present value after factoring in the cash recovery. In some of the cases, discussions had started with giving 40-45% weight to this parameter but that has now been pared to 30%. So, whoever offers more cash upfront will score higher, a move that will allegedly favour the bidders.

The other key clause is how much upfront cash recovery can the banks make, which the promoters say once again goes against their interest. “In any case, they will raise debt, repay part of the existing loans, get it back in a few days,” said the promoter of one of the companies.