Will dump Ruia if it interferes with Essar Steel bid: Numetal

As the race for the ailing Essar Steel intensifies, Numetal may revise its bid for bankrupt Essar Steel and exclude the Ruias if their presence in the consortium is found to be in violation of the Insolvency and Bankruptcy Code (IBC), according to VTB Capital, the dominant partner in the grouping, which is 60 per cent owned by the government of Russia.

Makram Abboud, vice-chairman, international, VTB Capital

Having Rewant Ruia's Aurora Investments as a minority shareholder of Numetal doesn't contravene the rules, said Makram Abboud, vice-chairman, international, VTB Capital, citing legal opinions.

If the government says that this again has changed, then we are always adaptable,'' Abboud said. ''We are very interested in this asset and we intend to buy this one way or the other and if the government asks us to make changes, we will have a discussion. We are always flexible when we need to be to attain our goal.''

Abboud also said ArcelorMittal is ''spoiling'' the bidding game of Essar Steel. Despite its lobbying with the Indian government, its ''illegal bid'' should not be cleared as it does not meet the eligibility criteria as per the current Insolvency and Bankruptcy Code (IBC), he said.

''We have taken legal opinion from three different law firms and they are all of the opinion that ArcelorMittal and its promoters' investments in two non-performing assets (NPAs) in India will debar it from bidding. Hence, we are confident that it is out of the game, but has made the offer just to spoil the game for others,'' said Abboud.

ArcelorMittal has recently said it is eligible to bid for Essar Steel. (See: ArcelorMittal keen to bag Essar Steel, says it will be perfect fit).

The controversy over ArcelorMittal's bid ignited as the group held a 29.05-per cent stake in Uttam Galva Steels as a co-promoter along with the Miglani family, which is now an NPA. However, on 7 February, just before bidding for Essar Steel, ArcelorMittal transferred its entire shareholding to the Miglani family at Rs1. Consequently, the co-promotion agreement with the Miglani family dated 4 September 2009 stood terminated, it had said.

The outcome of both bids are expected this week. VTB Capital and its partner Tyazhpromexport, an engineering company, owns 75 per cent stake in Numetal Mauritius, which has made a bid for Essar Steel.

''The current IBC norms are very clear that defaulting companies and their promoters are not eligible to bid. Yet, ArcelorMittal bid for Essar Steel,'' said Abboud. A Singapore-based trust with Rewant Ruia as its beneficiary owns 25 per cent stake in Numetal.

''We have great experience in running steel plants and turning them around when the industry goes through a downcycle,'' said Abboud. VTB Capital, he said, has done over $13 billion of transactions in India.

Reports say Ruia as beneficiary of the trust could also make Numetal ineligible, as Ruia-promoted Essar Steel defaulted on bank loans of Rs440 billion.

Questions have been raised on Numetal's eligibility as Rewant Ruia, son of Essar Steel's co-founder Ravi Ruia, is a shareholder and bankruptcy rules prohibit a person connected to the defaulting company from participating in the process. Rewant, through Aurora Enterprises, owns 25 per cent in the consortium.

Numetal is vying with a joint venture between ArcelorMittal and Nippon Steel for Essar Steel. The eligibility of both the bidders is being evaluated by law firm Cyril Amarchand Mangaldas and the results are expected to be out on Monday.