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Arcelor`s $6 Billion Essar Deal Stymied by Lenders` Squabble

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Published on 13th April, 2019

ArcelorMittal’s plan to buy a bankrupt Indian steel company for $6 billion was halted temporarily by the nation’s top court, further delaying tycoon Lakshmi Mittal’s efforts to enter the world’s second-biggest market.

The Supreme Court ruled that Essar Steel India Ltd.’s current status has to be maintained, pending a review by a bankruptcy tribunal hearing appeals related to the sale. The company is currently being managed by a court-appointed administrator. Friday’s ruling was in response to petitions by banks, including Standard Chartered Plc, which are fighting over how money that’ll be received from the company’s sale should be distributed.

A lower court had last month approved Arcelor and its partner Nippon Steel Corp.’s offer to pay $6 billion upfront to lenders and invest another $1.1 billion in the Indian steel company.

Friday’s court decision disappointed foreign exchange traders, who were expecting an inflow of dollars into India due to the transaction. The rupee extended its drop to as much as 0.6 percent after the court ruling. Shares of State Bank of India -- the biggest lender to Essar Steel -- declined as much as 1.2 percent in Mumbai, while Arcelor’s stock fell as much as 1.8 percent in Amsterdam. Both stocks later erased the losses.

The court order may delay Arcelor’s plans to take control of Essar’s steel mill in the western state of Gujarat, which has 10 million metric tons a year of capacity. The deal would have made Mittal the fourth-biggest producer in a nation where the government is investing trillions of rupees in infrastructure.

Lender Skirmish

The bankruptcy court overseeing the sale had asked a panel of lenders to consider higher payments to Standard Chartered, which said a substantial part of its 35 billion rupees ($505 million) in dues would remain unpaid under Arcelor’s plan for the distribution of money among lenders.

The panel of creditors, lead by the State Bank of India, had decided against a higher payment to Standard Chartered and challenged the order of the lower court. On Friday, the Supreme Court’s two-judge bench headed by Justice Rohinton F. Nariman directed the tribunal, which is due to hear the case on April 23, to decide on the distribution of payment among creditors soon.

Delays in the sale of assets under the bankruptcy law due to multiple challenges in courts by founders, administrators, lenders and applicants are becoming a key challenge for bidders who “cannot wait indefinitely” because of funding constraints, according to JSW Steel Ltd. Joint Managing Director Seshagiri Rao. “It is not possible for any company, big or small, to keep the funding ready forever,” he said Wednesday.

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