DNA MONEY EXCLUSIVE: Foreign funds lap up Essar Steel loans from banks

As the debt resolution of Essar Steel drags, Bank of Baroda (BoB), Federal Bank, IDBI Bank and Jammu & Kashmir Bank have sold part or all their loans to the Ruias-promoted steel company, totaling over Rs 2,000 crore, to overseas investors or asset reconstruction companies. SC Lowly bought the loans from Federal Bank, Bank of Baroda and Jammu and Kashmir Bank.

IDBI Bank sold its overseas exposure to foreign investors. Outside of the banking system, Edelweiss holds about 12% of the total Essar Steel debt of Rs 49,000 crore.

Hong Kong-based bond trading firm SC Lowy and Edelweiss have jointly bought out Rs 1,400 crore of loans extended by BoB to Essar steel. There was a haircut of 30%, with the bank getting 70% of its money back. The entire transaction was a cash payment.

Bank of America-Merrill Lynch, Deutsche Bank, SC Lowy, Edelweiss and other hedge funds and stressed asset funds who are yet to get licences to operate in India are bidding for the assets.

Senior officials of Bank of Baroda and Federal Bank confirmed to DNA Money that they sold a portion of their exposure to overseas investors.

Federal Bank sold its loan, getting back its principal amount of Rs 38 crore of security receipts in the secondary market at a profit. Jammu and Kashmir Bank also offloaded its Rs 565 crore exposure in Essar Steel, which is currently in the National Company Law Appellate Tribunal (NCLAT).

NCLAT on June 17 directed Numetal and ArcelorMittal India, which were disqualified under Section 29(A) of the Insolvency and Bankruptcy Code (IBC) to bid for Essar Steel, to file written submissions by Friday, stating why their applications should be considered.

"Foreign investors and stressed asset funds are actively looking at buying out stressed assets, particularly those nearing resolution," a senior banker said.

On April 19, National Company Law Tribunal (NCLT) had rejected the first round of bidding for the company, saying that the committee of creditors and the resolution professional failed to follow the rules prescribed by IBC. But the court had made it clear that both the bidders, ArcelorMittal and Numetal, must clear the debts of defaulting companies wherever they hold stakes so that they become eligible to bid under IBC without any pending dues. ArcelorMittal will have to make payments on account of Uttam Galva Steel and KSS Petron to become eligible, the combined liability of which is pegged at Rs 7,000 crore.

Numetal (Mauritius) Ltd in May moved NCLAT against an order by the Ahmedabad bench of NCLT that disqualified its bid for Essar Steel for being ineligible under Section 29 A of IBC.