Lenders continue to financially support Bhushan Power and Steel (BPSL) even as its NCLT-approved sale to JSW Steel and the EBITDA of over ₹3,000 crore accumulated during the insolvency period remain contentious issues.

Bankers have been pushing JSW Steel to seal the over 3.5-year-old insolvency case, since the Supreme Court has not stayed the IBC process even while agreeing to hear the petitions filed by the Enforcement Directorate and the BPSL promoter Sanjay Singal.

The Supreme Court had directed the lenders to refund the money to JSW Steel if the verdict goes against the deal.

Nadiya Sarguroh, Senior Associate, MZM Legal, said having JSW Steel make any payment without resolving the issues of the maintainability of Section 32A (providing immunity to corporate debtor for offences committed prior to start of insolvency process) of the IBC, the commercial viability of the resolution plan and the interplay between the IBC and the Prevention of Money Laundering Act (PMLA) is akin to dangling a sword over JSW Steel, and the acquisition at this stage does not seem fair.

The Supreme Court may have to consider the constitutionality of the insertion of Section 32A vis-a-vis the objectives of the PMLA, and decide the level of ED interference allowed when it comes to the assets of the corporate debtor for whom the resolution plan is already approved, said Sarguroh.

EBITDA conflict

As per the resolution plan approved by lenders for BPSL, the EBITDA generated during the insolvency period would belong to JSW Steel. In fact, Singal had moved the apex court claiming the EBITDA of about ₹3,000 crore generated during the insolvency period will be a windfall for JSW Steel at the cost of the lenders who have been extending financial support to keep BPSL a going concern.

In order to convince the agitated lenders, JSW Steel recently agreed to share ₹400 crore of the EBITDA over and above its bid of ₹19,350 crore.

JSW Steel cannot revise the bid after it is approved by the NCLT, and it may probably be only parting with the EBITDA generated since its plan was approved by the NCLT in February, said an analyst.

Darshan Upadhyay, Managing Partner, Stratage Law Partners, said in the absence of a stay and considering the delays in closing the offer, there is nothing prohibiting JSW Steel from providing an extra amount over and above the bid and closing the transaction if the required majority of lenders agree.

It will be interesting to see whether JSW Steel, which was seeking immunity for itself against ongoing probe against Singal, will close the deal without the final approval of the Supreme Court.

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