Vedanta takes control of Electrosteel Steels even as petition challenging eligibility awaits NCLAT hearing

Vedanta has moved on to the next step in the acquisition drama over Electrosteel Steels Ltd (ESL) by setting up a new board of directors, even as a petition challenging its eligibility to bid for the same is pending before the National Company Law Appellate Tribunal.

"Pursuant to the order dated May 30, 2018, of National Company Law Appellate Tribunal, Vedanta Limited is implementing the approved Resolution Plan for Electrosteel Steels Limited (ESL)," the Anil Agarwal company said in a recent filing to BSE, adding that "Vedanta Star Limited ('VSL'), a wholly-owned subsidiary of our company, has deposited the upfront amount of Rs 5,320 crore in escrow account of ESL and June 4, 2018 has been determined to be the 'Effective Date' under the Resolution Plan."

In a separate regulatory filing, Vedanta stated that "all requisite approvals like approval from the National Company Law Tribunal and the Competition Commission of India have been received" so it has taken management control of ESL and "initiated implementation of the Resolution Plan". Vedanta now holds 90 per cent of the paid up capital of ESL.

According to Vedanta, the ESL acquisition will "complement the company's existing iron ore business as the vertical integration of steel manufacturing capabilities has the potential to generate significant efficiencies". With a current capacity of 1.5 million tonnes per annual (MTPA) - and a potential to increase the capacity to 2.5 MTPA - ESL's manufacturing facilities near Bokaro, Jharkhand is located close to Vedanta's iron ore mines in the region. So it is a neat fit, not to mention a profitable purchase. The plan is to invest in ESL through a combination of equity of Rs 1,765 crore and inter-corporate loan of Rs 3,555 crore.

According to The Economic Times, Vedanta has nominated Rashmi Mohanty, PK Mukherjee (former Sesa Goa MD) and Naveen Singhal, present CEO of Vedanta Sesa Goa Iron Ore, as its nominee directors on the reconstituted board of ESL.

All this, however, hinges on the outcome of the challenge posed by Renaissance Steel, whose bid was earlier rejected by ESL's committee of creditors. Renaissance Steel has challenged Vedanta's eligibility to bid for ESL under Section 29 A of the Insolvency and Bankruptcy Code, which bars applicants that have "been convicted for any offence punishable with imprisonment for two years or more". It had claimed that Vedanta Resources Plc, holding company of Vedanta, had pleaded guilty to charges against its Konkola Copper Mines for violating violated pollution norms in Zambia back in 2010.

The NCLAT bench that passed the above order allowing Vedanta to move in on ESL had also made it clear that the upfront payment was subject to the outcome of Renaissance Steel's petition. If the latter wins the case, then ESL's CoC will have to return the money to Vedanta. Assuming that Vedanta emerges victorious, ESL poses the second successful resolution under the IBC from the first 12 large stressed assets identified by the RBI last year.

With PTI inputs