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ArcelorMittal to cash out of Uttam Galva at a big loss to avoid IBC googly

The end of Mittal's 9-year-old investment ends months of speculation and corporate shadowboxing over his eligibility to bid for stressed steel assets in India.

, ET Bureau|
Last Updated: Feb 06, 2018, 11.02 AM IST|Original: Feb 06, 2018, 11.02 AM IST
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MUMBAI: Lakshmi Mittal has decided to sell his 29.5% stake in Uttam Galva Steel at a loss -- a nine year old investment of Luxemburg headquartered ArcelorMittal, ending months of speculatiion and corporate shadowboxing over his eligibility to bid for stressed steel assets in India. Mittal will also cease to be a co-promoter of the company after the transaction is concluded later this week, said multiple sources aware.

Through an inter-se transfer of shares among promoters, Sainath Trading Company Limited, a group entity of the promoters of Uttam Galva, the Miglani family, will be buying 4,13,27,931 shares, representing the entire block of shares owned by ArcelorMittal Netherlands BV at an average of Rs 24/share. The block trade is expected to happen this week, possibly as early as Wednesday. The Miglani family thereafter will own the entire 60.87% stake, with public shareholders owning the remaining 39.13%, as per the latest shareholding pattern owning 4,46,51,531 shares.

“All agreements have been signed between both sides. The transaction should put an end to all speculation,” said a source directly involved. “The Miglanis have organised the funding all ready.”

BCCL
ArcelorUttam


Details of the funding arrangement could not be independently verified.

When contacted Ankit Miglani, promoter, director Uttam Galva Metallics declined to comment. Mails sent to ArcelorMittal spokesperson did not generate a response till press time.

Even though the reasons for the trade has not been specified to the exchanges, the timing is ominous.

IBC GOOGLY
The amendments to the Insolvency and Bankruptcy Code (IBC) had barred errant promoters from reacquiring their own assets and also any related party, thereby putting in a question mark on Mittal’s eligibility to bid for distressed assets like Essar Steel.

According to a new Section 29A of the IBC, a person shall not be eligible to submit a resolution plan if such person, or any other person acting jointly with such person, or any person who is a promoter or in the management control of such person, is an undischarged insolvent. This prohibits promoters or sister concerns of companies with non-performing assets (NPAs) of more than a year from bidding for these companies.

In 2009, the world’s largest steel maker had picked up a stake in Uttam Galva Steels in tranches. The “co-promotion” agreement signed then did not disclose the financial specs of the deal but sources involved said Mittal’s picked up the first tranche of 5% for Rs 69.6 crore at Rs 120/share.The move, had paved the global steel company’s entry into India after several abortive attempts to set up mega greenfield plants.

But since last September Uttam Galva Steels was classified as an NPA, thereby raising doubts over Mittal’s bid. Uttam Galva Steels has around Rs 5,500 crore of bank debt. Another Rs 5,000 crore is spread across other group companies. State Bank of India is the lead in the consortium along with a clutch of banks including, PNB, Canara and Bank of Baroda and others.

ArcelorMittal however had maintained that this should not impede their chances as they remained a passive investor throughout. The company has been working with Goldman Sachs, Mckinsey and a host of other consultants and lawyers to evaluate prospects in India. Aditya Mittal, Group CFO, ArcelorMittal himself had been leading the campaign, having flown down for site visits in both Gujarat and Orissa, the sites for Essar and Bhushan’s plants respectively.

“We hold a non-controlling minority shareholding in Uttam Galva, have no representation on the board of directors, nor influence on management decisions. As such, we are not a promotor of Uttam Galva. Therefore, there is no objective reason for Arcelor-Mittal to be prevented from bidding for any steel asset under the restructuring process,” ArcelorMittal told ET last November.

OPEN TO INTERPRETATION
The issue was however open to legal interpretation, said bankruptcy professionals.

While under the Sebi Act, the stock exchanges view ArcelorMittal as a promoter of Uttam Galva, the Companies Act, classified them as a minority investor. “We are a widely recognised and highly creditworthy international investor and hence do not believe that this amendment should prevent Arcelor-Mittal from bidding for distressed steel assets in which we have had no prior involvement,” ArcelorMittal had told ET.

But that did not stop rivals create pressure groups against Mittal with frantic lobbying at the highest levels of the government. Peers cited that even in their open offer documents for Uttam Glava, the Mittals were classified as promoters. Even then, sections of the banking industry were sympathetic suggesting that SBI Capital Markets – an advisor to lenders on restructuring packages for some of the companies – first made a visit to London in July to make a pitch for stressed steel assets.

Since 2005, ArcelorMittal has been trying to enter India with grand plans of setting up a mega steel plant. It signed a memorandum of understanding (MoU) with the Jharkhand government for setting up a 12-mt plant in the state. A year later, the company signed another MoU with the Odisha government for a similar-sized plant. It had even signed an MoU with the Karnataka government for a 6-mt plant. But none of the projects had made any headway. Along with HPCL, it has already deployed $6 billion in aN 11.3 mtpa grassroots oil refinery in Bhatinda, Rajasthan.

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