In a first of its kind, Bhushan Power and Steel’s creditors’ committee has approved JSW Steel’s proposal to pay the bid amount of 19,350 crore to acquire the company, even if the matter is brought before the Supreme Court.
The Apex court has yet to have an enforcement agency complaint attempting to peg the stressed assets as part of its investigation against the former owners of Bhushan Power and Steel.
Under the agreement now made between Bhushan Power’s lenders and JSW Steel, the banks will refund the bid amount if the Supreme Court upholds ED’s right to seize the assets.
JSW had previously announced that it would only pay the bid amount after the Supreme Court had clarified the complaint filed by the investigative authority. Subsequently, JSW agreed to deposit the money into an escrow account with Punjab National Bank within 30 days of its plan’s approval, on condition that the amount would be refunded within two months if the Supreme Court ruling violated the sale the Bhushan power.
Sources said that as of Friday, nearly 97 percent of lenders voted in JSW Steel’s plan to prop up their balance sheets before fiscal year ends.
In addition to backing up their balance sheets, the banks are concerned that they have funded Bhushan Power for the past four years to keep the company going, while the profit generated will go to successful bidder JSW Steel according to the approved wind-up plan.
For JSW, despite the uncertainty over the Supreme Court ruling, the deal accelerates its plans to acquire additional capacity at a time when the steel market is picking up.
When contacted, a senior JSW Steel employee said that the company is currently unable to comment, but is in constant contact with the CoC.
Vaibhav Gaggar, Managing Partner of Gaggar & Associates, said the entire transaction could be quite risky, both legally and practically, for everyone involved. It appears to be based on an eventuality and also on the decision of the Supreme Court, he added.
Interestingly, the ED has refused to lift the attachment of Bhushan’s property despite NCLAT ruling that the attachment is illegal.
Shiju PV, partner at IndiaLaw LLP, said that approving the plan seems like a way out for all parties for now, but in the long run it could cloud the whole settlement process.
Nadiya Sarguroh, senior associate at MZM Legal, said the compensation was key to finalizing the four-year-old BPSL bankruptcy solution. The JSW ruling is subject to a proposal for full indemnity and immunity from any adverse rulings by the Supreme Court.
“I believe JSW would have covered all the corners to protect the impact and request a full cashback to safeguard its interests and secure the compensation through a full CoC vote to be filed in the Supreme Court”, Said Sarguroh.
With JSW Steel’s offer, creditors can recover over 41 percent against admitted claims of 48,000 crore.
SBI is the largest lender to Bhushan Power and is expected to receive back more than 4,000 crore on its admitted claim of 9,825 crore, while PNB 4,400 crore, ARCE ARC and Canara Bank will receive 5,257 crore and 2,244 crore, respectively.
Bhushan Power was on the first list of a dozen defaulters identified by RBI and sent to NCLT for resolution. The NCLT had approved JSW Steel’s wind-up plan for Bhushan in September 2019, but the case was held in court.