Bhushan Steel Limited Emerges Out Of Bankruptcy As Tata Steel Takes Over
May 19th, 2018
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In a historic takeover, Tata Steel has acquired 72.67% stake in Bhushan Steel Limited (BSL), making it the first company to emerge successfully from insolvency and bankruptcy process. The deal settled nearly 35,200 crores, which the bankrupt steelmaker owed lenders, which is almost two-thirds of the total loans.
Banks headed by State Bank which lent ₹12,872 crores, followed by Punjab National Bank with ₹4,904 crore and ICICI bank at ₹2,449 crores will now have a big sigh of relief, with the deal reducing their bad loans burden.
Interim Finance Minister Piyush Goyal in his tweet termed this “a historic breakthrough” and further added,” banks will now be in a position to offer more and affordable credit to major sectors of the economy, especially the MSMEs. This will boost employment and the economy even more.”
The Economic Times reported that the acquisition will give 72.67% stake to Bamnipal Steel, Tata Steel’s subsidiary, 12.27% to the lenders and the rest to existing shareholders. Moreover, three senior executives from Tata, viz a viz Dibyendu Dutta (group head-M&A and treasury at Tata Steel), Anand Sen (President Total Quality Management and Steel Business at Tata Steel) and Rajeev Singhal (director at several Tata Group companies), will be part of the new board, marking the exit of executive directors and existing promoters, Brij Bhushan Singhal and Neeraj Singhal.
According to the Mint, Neeraj Singhal former vice-chairman and managing director of Bhushan Steel, has moved the National Company Law Appellate Tribunal (NCLAT) seeking a stay on the takeover by Tata Steel. Further, it noted that being an original promoter, he doesn’t want his equity (43.9% as of March) to be transferred to Tata Steel.
Furthermore, Tata Steel will have to deal with more litigation as L&T moved the bankruptcy court seeking full compensation against its claims of 900 crores from Bhushan Steel, according to The Economic Times. The report further added that L&T wants to be treated as a secured creditor which promises payment of the outstanding against being an operational creditor that doesn’t pledge the money.
Talking to The Economic Times, Tata Steel managing director TV Narendra said, “We are looking forward to working with all stakeholders and the community to build a sustainable future for BSL. There are significant synergies across the value chain which will also enable us to build stronger equity with our customers.”Furthermore, he added, “We will take on board all 5,000 employees as part of the resolution plan that we have submitted”.
A press statement issued by Tata Steel details that the investment from BNPL in BSL has been through a combination of the equity of ₹158.89 crore and an inter-corporate loan of ₹34,973.69 crore. An additional 100 crore has been paid by Bamnipal Steel to the financial creditors of BSL to repay old debt. Also, ₹1200 crore would be paid to operational creditors over a period of 12 months, as per the terms of their resolution plan.
The acquisition is being financed by an external bridge loan of ₹16,500 crore taken by BNPL, and the remaining ₹18,700 crore through equity investments by Tata Steel. Lastly, the bridge loan will be replaced by long-term debt over a period, according to the press release.
Also published on Medium.