Tata Steel’s acquisition of Bhushan steel a failure or success- Ramesh Pandit

Tata Steel's acquisition of Bhushan steel a failure or success

Bhushan Steel Limited is the largest manufacturer of auto-grade steel in India, with a large amount of debt in proportion to its equity (3.5 times more), is a highly leveraged company. The company’s consolidated debt stands at ₹31,839 crore, having risen 18 per cent from a year ago. The Company is spending Rs. 260 billion to expand its capacity to 12 million tonnes annually, from the present installed capacity of around one million tonnes.

BSL in 2015

Insolvency proceedings were initiated against the former company on 26 July 2017 under the Insolvency and Bankruptcy Code, 2016.

Tata Steel on 18 May 2018 announced the completion of its acquisition of the then Bhushan Steel (BSL) through its wholly owned subsidiary Bamnipal Steel Ltd (BNPL), wrapping up the resolution of the first case under Insolvency and Bankruptcy Code, 2016. The bankrupt firm was among the 12 stressed assets the RBI had referred for National Company Law Tribunal (NCLT) proceedings last year.On November 27, 2018 the company was renamed as Tata Steel BSL Limited from Bhushan Steel Limited.

This company is distinct from Bhushan Power & Steel Ltd (with Sanjay Singal as Chairman & Managing Director) with major claims by creditors against it, including the Punjab National Bank.

In April 2019, the Tata Steel board approved the merger of Bamnipal Steel and Tata Steel BSL (formerly Bhushan Steel Ltd) with itself.

Tata Steel said in a press statement that it has taken a controlling stake of 72.65% in Bhushan steel and paid the admitted corporate insolvency costs and employee dues, as required under IBC. Further, settlement of amounts equivalent to Rs35,200 crore towards financial creditors of Bhushan steel is being undertaken, and Rs1,200 crore will be paid to the operational creditors of Bhushan steel over a period of 12 months, said the statement.

Tata Steel’s legal team has filed a caveat, a pre-emptive application that the court will not pass an order on this appeal without hearing the company.

This is not the first of unforeseen delays for Tata Steel. The firm has already fended off litigation from Larsen & Toubro Ltd, one of Bhushan’s operational creditors, and BSL’s employees.

Dismissing these cases, on Tuesday the National Company Law Tribunal (NCLT) approved Tata Steel’s takeover of BSL.

The delays in its takeover bid have led to corporate governance issues at the plant, with the senior management hinting earlier to Mint that there might be cases of under-invoicing and contracts being awarded to people known to the erstwhile promoter.

A spokesperson for Tata Steel said that employees of the company have moved into key locations of BSL , including Khopoli, Dhenkanal and Sahibabad, wresting physical control of plants before NCLAT hears Singhal’s plea.

The investment in BSL through BNPL has been done through a combination of equity of Rs158.89 crore and an inter-corporate loan of Rs34,973.69 crore. Additionally, Rs100 crore has been paid by BNPL to the financial creditors of BSL to repay old debt.

The acquisition is being financed through a combination of external bridge loan of Rs16,500 crore availed by BNPL, with the remaining Rs18,700 crore coming in the form of equity infusion by Tata Steel in BNPL. The bridge loan availed by BNPL is expected to be replaced by debt raised at BSL over time.

Nominees of BNPL have been appointed on the board of BSL and the existing directors of BSL are deemed to have resigned from its board, according to the terms of the approved resolution plan.

BNPL shall be classified as the “promoter” of BSL, and the existing promoters/promoter group re-classified as public shareholders of BSL, according to the resolution plan approved by NCLT.

Tata Steel has walked away with a profit of ₹5,000 crore made by Bhushan Steel during the insolvency period stretching over 18 months.

This contrasts with the National Company Law Tribunal (NCLT) ruling that the profit made by Bhushan Power and Steel during the insolvency period belongs to the financial and operational creditors.

JSW Steel moves NCLAT

JSW Steel, the winning bidder of Bhushan Power, has moved the National Company Law Appellate Tribunal (NCLAT) against the NCLT’s order. As of May 18, the current assets of Bhushan Steel were ₹7,909 crore, while its current liabilities were ₹2,742 crore. Therefore, the net current assets bagged by Tata Steel after the insolvency proceeding were ₹5,168 crore.

Bhushan Steel had inventories of ₹4,219 crore and trade receivables of ₹1,288 crore when Tata Steel officially took over the company. Tata Steel also inherited non-current assets, other than fixed assets of ₹2,028 crore and and non-current liabilities of ₹97 crore. In all, it got non-current assets of ₹1,931 crore.

Thus, Bhushan Steel has gained ₹7,099 crore ever since Tata Steel placed a bid of ₹35,000 crore to acquire the insolvent asset.

Considering that the Insolvency and Bankruptcy Code (IBC) was a time-bound resolution process, the Committee of Creditors (CoC) did not make a claim on profit during the insolvency period in the initial cases, said a lawyer familiar with the development.

Some of the other companies that benefited from the CoC’s omission include Vedanta and JSW Steel, which acquired Electrosteel Steels and Monnet Ispat. Unlike Bhushan Steel, the profit accrued in both the cases was negligible as most of the units in both cases were not operational.

The issue of profit in the case of Bhushan Power was raked up by during the court proceedings by its promoter, Sanjay Singhal, who said the initial process document for insolvency issued by the CoC cannot be changed at the fag end.

Once bitten twice shy

The CoC has made its claim on profit in the case of Essar Steel, whose insolvency proceeding was delayed as the company had moved various courts to scuttle insolvency, said the lawyer.

In the case of Essar Steel, which is being taken over by ArcelorMittal, the NCLT ruled that the ₹3,400-crore profit made by Essar Steel during the insolvency period should be distributed among the financial and operational creditors.

The sharp increase in demand, lower cost of production and moratorium on interest payment on defaulted loan have ensured that the insolvent company made a huge profit during the insolvency period, said an analyst.

Responding to a query by Business Line, a Tata Steel spokesperson said: “Tata Steel Ltd acquired a controlling stake in Tata Steel BSL Ltd for ₹35,232.58 crore. Accounting for the acquisition entailed adjustments as per the approved resolution plan and as per the requirements of the accounting standards. The assets and liabilities of the acquired business were recognised at fair value as on the acquisition date. The net current assets, as mentioned in the story, does not represent profit earned by Bhushan Steel during the insolvency period.”

References from below mention websites…….

  1. https://economictimes.indiatimes.com/industry/indl-goods/svs/steel/nclt-approves-tata-steel-takeover-of-bhushan-energy/articleshow/69586225.cms
  2. https://www.livemint.com/companies/news/tata-steel-completes-acquisition-of-bhushan-energy-1559401093938.html
  3. https://en.wikipedia.org/wiki/Tata_Steel_BSL

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