Resolution of Bhushan Steel bankruptcy is credit positive, says Moody's

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A day after Tata Steel was declared the highest bider for acquiring stressed assets of Bhushan Steel, Larsen & Toubro Ltd has moved the National Company Law Tribunal seeking higher priority in getting its dues from the latter. Tata Steel won with a bid of Rs 35,000 crore, with JSW Steel finishing second with a bid of Rs 29,700 crore.

If Tata Steel can overcome all the legal hassles that are likely to crop up before the completion of the transaction, the company will add close to 5.6-million-tonne steel making capacity to its portfolio.

At 559.89 billion rupees ($8.75 billion), Bhushan Steel faces the highest claims among a dozen companies pushed to bankruptcy court previous year as part of a government drive to clear a mountain of bad loans choking credit at Indian banks. They are also in the fray for assets of Essar Steel.

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Bhushan Steel is one of the 12 large NPAs identified by RBI in June, 2017 for resolution process and owes Rs 44,400 crore to a consortium of creditors led by SBI.

Tata's access to iron ore mines also puts it in a much better position to turn around Bhushan Steel's unit.

Nevertheless, based on media reports, the purchase price could result in a haircut of around 25 per cent for the lenders to Bhushan Steel, said Moody's.

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Bhushan Steel had said last month that the resolution professional managing its case received plans from Tata Steel, JSW Living, a subsidiary of JSW Steel, and employees of Bhushan Steel.

Appearing for L&T, lawyer Mukul Rohatgi asked NCLT to declare its position as a "secured creditor", rather than an "operational creditor" under the Insolvency and Bankruptcy Code, to move up the priority ladder in the corporate insolvency resolution process.

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