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ArcelorMittal's $6 Billion Essar Steel Buy Gets Court Nod

July 5, 2019
An Indian court allowed ArcelorMittal’s $6 billion purchase of a bankrupt steel company.

An Indian court allowed ArcelorMittal’s $6 billion purchase of a bankrupt steel company, paving the way for tycoon Lakshmi Mittal to enter the world’s second-biggest market. Shares of Arcelor advanced in Amsterdam.

The National Company Law Appellate Tribunal rejected petitions challenging the sale by the lenders and founders of Essar Steel India Ltd. and modified the distribution of the proceeds, saying the money has to be shared proportionately.

“Financial creditors being claimants at par with other claimants cannot distribute the amount in favor of themselves," and the distribution of funds must be decided by an insolvency administrator or the resolution professional, Justice S. J. Mukhopadhaya said.

The decision, which can still be challenged in India’s top court, could end Arcelor’s year-long legal battle for the steel plant. The acquisition would make Mittal the fourth-biggest producer in a nation where the government is investing trillions of rupees in infrastructure. The payout is also being keenly watched by foreign exchange traders, who are expecting an inflow of dollars into India due to the transaction.

Rupee Gains

Shares of Arcelor rose for the first time in three days, jumping as much as 2.6% after the court approved the deal. The rupee rose to its highest level against the dollar in three months.

”We are awaiting the detailed order and will decide our course of action thereafter," an Essar Group spokesperson said.

A lower court had earlier approved Arcelor and its partner Nippon Steel Corp.’s offer to pay 420 billion rupees in cash to creditors and pump in another 80 billion rupees in the mill. That ruling was challenged by Standard Chartered Plc, which said the division of the payout among lenders was discriminatory, while founder Prashant Ruia questioned Arcelor’s eligibility to buy the company. The court had earlier rejected a late offer by Essar Steel’s founder Ruia family to settle all dues.

Distribution of Funds

The panel of creditors, led by the State Bank of India, had rejected a proposal for higher payment to Standard Chartered. In the skirmish between the banks, the top court had in April ordered a temporary halt on Arcelor making a payment and asked the bankruptcy court to decide the issue.

In Thursday’s ruling, the court said there can’t be discrimination against financial creditors like Standard Chartered during the distribution of funds and that all financial lenders will get 60.7% of their claims. Operational creditors, or suppliers to the plants, will also get around 60% of their claims on a pro rata basis, it said. Financial creditors will get 300 billion rupees of Arcelor’s 420 billion rupee payment, while suppliers and employees will get the rest.

The tribunal also rejected a request by the panel of creditors to put the order on a temporary hold to give them time to challenge the ruling in the top court.

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