L N Mittal, UK based Indian billionaire is all set to take over the Essar Steel, the prized asset of Ruia family. The Ahmedabad based branch of National Company Law Tribunal (NCLT) has ruled in the favour of ArcelorMittal’s 42,000 crore rupees resolution plan. ArcelorMittal is the largest steel producer in the world with production capacity of 97 million tonnes in 2017. The company is led by L N Mittal, an Indian businessman based in the United Kingdom.
The successful resolution of the debt ridden enterprise is another major achievement of the Insolvency and Bankruptcy Code, brought two years back to solve Non Performing Assets (NPA) problem. In the last two years, IBC has become a formidable tool for resolution of debt ridden companies in many sectors including steel.
Moreover, India became the second largest steel producer with a capacity of 101 million tonnes in 2017. China is the only country ahead of India with a production capacity of 831 million tonnes. The consumption of steel has grown exponentially in the previous years in India and the production capacity of the country overtook Japan to become the second largest producer.
IBC was brought two years back to solve the twin balance sheet problem. The new law successfully resolved the problem of repeated government investment in public sector banks due to capital shortage as well as went on to punish non performing companies which did not pay back loans as they were sure that the management of the company will remain with them. Moreover, India did not have a healthy corporate culture for decades. Previously, governments used to spoon-feed selected established corporate houses through public sector bank loans and if businesses fail, public sector banks which run on taxpayers’ money had to bear losses.
The gross NPA of the country is INR 8.5 trillion which is equal to 6 percent of the economy of the country or equal to the GDP of West Bengal. India has one of the largest shares of bad debts in the world with 9.6% NPAs of total loans. The huge NPAs hurt the lending capacity of banks and credit crunch took a toll on economic growth. The government has to put 2.11 trillion rupees in public sector banks to revive the credit and push capital adequacy to Basel III norms.
According to corporate affairs secretary Injeti Srinivas, 3 trillion rupees has been recovered so far in two years due to implementation of IBC. 3500 cases with default around INR 1.2 trillion rupees were withdrawn from NCLT because creditors recovered money by threatening the debtors about going through IBC. The Insolvency and Bankruptcy Code (IBC) is proving to be the most powerful weapon against the NPA problem, even the Economic Survey 2018 acknowledged the fact that the new Insolvency and Bankruptcy code (IBC) was helping to improve the health of banking sector.
The recent development of Mittal getting control of Essar Steel sets stage for him to enter into Indian steel industry. ArcelorMittal will jointly own and control Essar Steel with Nippon Steel & Sumitomo Metal Corp, the Japanese company.