US-based fund CarVal Investors may renegotiate its ₹2,300-crore bid to buy Uttam Value Steel Ltd and Uttam Galva Metallics under the Insolvency and Bankruptcy Code (IBC).
CarVal’s bid was approved by the National Company Law Tribunal (NCLT) in March. However, the investor has now told the lenders of the stressed companies that the demand disruption in the steel sector due to the Covid-19 pandemic has affected the valuation significantly. It is likely that the buyer will even invoke the force majeure clause, said sources aware of the development. CarVal is a global alternative investment manager focussed on distressed and credit-intensive assets.
Ratings agency Crisil had recently said it expects steel demand to contract by 14-17 per cent this fiscal due to the extended lockdown.
The Mumbai Bench of the NCLT had approved the sale of the two Uttam companies to a consortium of CarVal and Nithia Capital Resources Advisors. CarVal did not reply to an email query sent by BusinessLine on Friday.
“Post the approval of the deal by NCLT, representatives from the lenders’ side and the winning bidders had been taking the process ahead to implement the deal,” an official involved in the deal said. “But the lockdown situation has delayed the transaction. Now, if the resolution process under the IBC fails, rebidding or liquidation may be the only options. In the current scenario, the assets may fetch lower recoveries.”
Under the approved resolution plan for the Uttam firms, the lenders would receive nearly 40 per cent of their claim. Reportedly, the admitted claim of the financial creditors was ₹3,634 crore in Uttam Galva Metallics and ₹2,479 crore in Uttam Value Steel. Union Bank of India has the highest exposure in Uttam Galva Metallics at ₹921 crore, followed by Bank of Baroda at ₹680 crore and Punjab National Bank at ₹571 crore.
A renegotiation of IBC deals is only to be expected, say experts. “Without going into the facts of any particular case, it is natural for parties to resort to negotiations in such difficult and unprecedented times,” said Nitin Jain, Partner, Agama Law Associates. “But the outcome may depend on the language in the contract and the circumstance under which clauses like force majeure are being invoked. One needs to determine the merits by giving reference to the situation that existed at the time when the terms were agreed upon by the parties and their corresponding contractual obligations.”
In a similar case, in April, Ramkrishna Forgings, the winning bidder in the bankruptcy proceedings for automotive component company Acil Ltd, had written to the lenders, seeking a renegotiation of its bid on the back of a Covid-led demand disruption. The outcome is not known.
Analysts said a spurt in such requests from winning bidders for stressed assets could pose a new challenge to IBC rules.