From debt trap to steely resolve, Bhushan Steel an outlier in IBC landscape

Apart from being the most successful cases under the IBC, Bhushan Steel and Essar Steel are among the best steel assets in the country. They also ended up helping their lenders get back a significant chunk of the money while allowing Tata Steel to consolidate its position and giving the world’s two largest steel makers — ArcelorMittal and Nippon Steel —  a strong foothold in India. A significant contrast was the pace at which these two cases were resolved under the bankruptcy code

In the Insolvency and Bankruptcy Code (IBC) landscape, Bhushan Steel (BSL) has been an outlier.

With many big-ticket cases on the Reserve Bank of India’s (RBI’s) first list of non-performing assets getting stuck in legal quagmire, the resolution of BSL wrapped up in under a year, with Tata Steel moving at lightning speed to close the deal and take charge within 48-72 hours of the resolution plan approval by the National Company Law Tribunal (NCLT).

It came with practice.

“It was a very involved mission with detailed planning, dry runs, scenario testing, execution, and timing,” says Koushik Chatterjee, executive director and chief financial officer, Tata Steel.

The micro-planning started from the time Tata Steel was declared the highest bidder, pipping JSW Living at the post.

BSL was admitted for insolvency proceedings on July 26, 2017. The initial response to the advertisement put out by the resolution professional for prospective resolution applicants was unprecedented, with 22 potential resolution applicants evincing an interest in BSL’s 5.6-million tonne plant in Odisha.

At long last, BSL received three resolution plans – from Tata Steel, JSW, and BSL employees. It quickly turned into a two-horse race. The Singals, BSL promoter, had also forwarded a plan in a closed envelope, but it was never opened on grounds of eligibility.
 

Before bid submission, the IBC was amended to introduce Section 29A that prevented defaulting promoters from submitting a resolution plan. It marked the end of the road for many promoters, including the Singals.

The BSL bid submission was in February 2018.

Early March 2018, the committee of creditors (CoC) voted in favour of Tata Steel’s Rs 35,200-crore resolution plan. The admitted claims of 53 financial creditors stood at Rs 56,080 crore. Almost the entire loan principal of BSL was recovered.

“The steel sector saw heightened interest in the initial two-three years of the IBC because the assets came at a time when the sector was going through an uptrend,” points out Abhishek Dafria, vice-president-structured finance, ICRA.

Tata Steel’s time started ticking after CoC approval.

“Our specific planning started when we were declared the highest bidder. We had to ensure the transaction was closed within 48-72 hours of the NCLT order, so that we didn’t get delayed by appeals. By closing, I mean, closing the entire transaction process by paying banks and other creditors, according to the resolution plan, getting RBI approval for external commercial borrowings, and consequently, taking charge of the company (BSL) and all its operating locations following due process,” says Chatterjee.

Teams were already near the plant site in Odisha. A board meeting was held at Hyatt Regency near the BSL corporate office in Delhi to replace old members with new directors. Finally, people near the site walked in.

It’s not that the transaction – completed in May 2018 – went down without any litigation. An appeal was filed by Singal after NCLT approval of resolution plan challenging Tata Steel’s eligibility. It was dismissed by the National Company Appellate Tribunal (NCLAT). An appeal by Larsen & Toubro, seeking higher priority in debt resettlement, was also rejected by NCLT and NCLAT.

But Tata Steel’s rush to take control of BSL unfolded well.

“By the time the Covid-19 pandemic struck, the operations of BSL and Tata Steel were already integrated; the synergy realisation started and transformation programme was fairly advanced. It was, in fact, ready for the upcycle,” clarifies Chatterjee.

Once economic activity resumed, steel prices touched record levels globally and in India. Tata Steel BSL not only turned around and made record profit in 2020-21 (FY21), the entire external debt of Tata Steel BSL at Rs 16,500 crore was repaid before the company merged with Tata Steel.

For FY21, Tata Steel BSL reported revenue from operations of Rs 21,419 crore (up 17.7 per cent year-on-year, or YoY), earnings before interest, tax, depreciation, and amortisation (Ebitda) of Rs 5,481 crore (up 131.3 per cent YoY), and net profit of Rs 2,516 crore versus net loss of Rs 617 crore in 2019-20. Of this, a third of revenues and almost half the Ebitda came in the January-March quarter (fourth quarter, or Q4) of FY21. Compared to an Ebitda per tonne of Rs 12,707 for FY21, Tata Steel BSL ended Q4 with a figure at Rs 21,648, according to Tata Steel’s Q4FY21 presentation.

Going forward, Meramandali in Odisha – the BSL site – will be an important cog in Tata Steel’s wheel to double capacity.