Construction arm of Essar Group heads towards liquidation

Essar Group’s construction arm, EPC Construction, could be headed for liquidation after oscillating between rescue and potential collapse for over three years, according to people in the know. The National Company Law Tribunal (NCLT) is said to be considering liquidation of the company after hearing arguments made by lawyers on behalf of the company’s financial creditors, these people said.

The financial creditors have argued in court that bankruptcy proceedings should be started afresh because a buyer who had originally offered to take over the company has now backtracked.
However, the court is not in favour of restarting proceedings, according to sources aware of the deliberations. Liquidation could potentially imply a Rs 7,000-crore loan write-off for the creditor group led by IDBI Bank.

IDBI Bank had not responded to requests for comment.
IDBI Bank leads a consortium of banks that includes Central Bank of India, UCO Bank, Exim Bank and Suraksha ARC among others. As the lead banker, it is empowered to take all decisions on behalf of the committee of creditors of EPC Construction.

Mauritius-based Royal Partners had made an offer of Rs 1,150 crore for the Essar arm two years ago, but later retracted its offer back on the ground that the pandemic had upset the financial calculations based on which its offer had been made.
The construction company, which was once the engineering think-tank of the Essar Group, has seen its fortunes fluctuate dramatically after it went into bankruptcy proceedings. ArcelorMittal came close to acquiring the company.

However, the steel maker’s offer for the construction arm is said to have been lower than that of Royal Partners and was rejected by the lenders. Executives close to the company claimed that ArcelorMittal had promised a $2 billion order book to EPC Construction if its bid were to be selected. These orders would come from expansion work to be carried out at Essar Steel’s Hazira steel facility that the company was acquiring.
Essar Steel was taken over by ArcelorMittal in December 2019 after that company went into bankruptcy proceedings.

If it is liquidated, the Essar arm would join a list of construction companies that faced a similar outcome after being taken into bankruptcy. The list includes Punj Lloyd, Lanco and IVRCL, which could account for potential write-offs of Rs 40,000 crore for banks, according to people directly in the know.

Once the NCLT orders liquidation, the court appoints an official liquidator who can look for a buyer for the company as a going concern, in which case it still stands a chance to be resurrected. However, if a buyer is not found, the company’s assets are sold piecemeal.

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