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Uttam Galva investors move SAT against ArcelorMittal as a public shareholder

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Investors argued Uttam Galva didn’t take shareholder approval to make promoter ArcelorMittal a public shareholder, a change that allowed the world’s largest steelmaker to bid for Essar Steel

Mumbai: A few shareholders of Uttam Galva Steels Ltd on Wednesday approached the Securities Appellate Tribunal (SAT) against stock exchanges reclassifying ArcelorMittal Netherlands BV as a public shareholder of their company, a change that enabled the world’s largest steelmaker to bid for stressed Essar Steel Ltd.

Hearing the matter, SAT asked BSE Ltd, National Stock Exchange of India Ltd (NSE) and the Securities and Exchange Board of India (Sebi) to respond before 23 April, when the matter will be heard next.

Emails sent to NSE, Sebi and Uttam Galva went unanswered. BSE declined to comment.

The exchanges had allowed the reclassification from promoter to public shareholder on 22 and 23 March. 

The exchanges called the reclassification a “technical issue” as prior to 7 February 2018, ArcelorMittal held 29.05% of the share capital in Uttam Galva and was named one of its promoters. On 7 February, ArcelorMittal sold its entire stake to Sainath Trading Co. Pvt. Ltd in an off-market sale.

The stock exchanges, while they have time to respond to plea in their initial submissions, said that transfer of shares happened between the promoters so a shareholder approval was not needed.

During a press conference after the meeting of its board, the markets regulator said that it will issue a discussion paper to ease norms for insolvent companies which will include rules for reclassification of promoters due to restructuring.

The shareholders said the exchanges did not follow a uniform approach in reclassifying the promoter group. According to existing norms, exchanges allow reclassification of promoter status on a case-to-case basis.

Uttam Galva also did not apply for reclassification when ArcelorMittal sold its stake on 7 February, they said.

They argued Uttam Galva did not take shareholder approval before applying for the change, and that the stake sale and reclassification was done to make ArcelorMittal eligible to bid for stressed assets.

The reclassification was important for ArcelorMittal as the Insolvency and Bankruptcy Code (IBC) prevents promoters of defaulters from bidding for assets of an insolvent firm. Promoter status would have prevented ArcelorMittal from bidding for companies such as Essar Steel which is currently undergoing resolution.

In the records of Indian stock exchanges, ArcelorMittal is no longer listed as a promoter of Uttam Galva.

Sumit Agrawal, ex-Sebi law officer and partner at Suvan Law Advisors consulting ArcelorMittal said, “In a case where shareholder approval itself is not required for a listed company to reclassify a promoter, what’s the grievance and locus of particular shareholders would be interesting to see.”

“Decision of allowing reclassification by stock exchanges or Sebi is based on an evaluation of the shareholding, rights, and control exercised by the relevant promoter,” he added. 

“This is another obvious action to delay and complicate the process to find a new owner for Essar Steel India. Quite clearly, ArcelorMittal is not a promoter of Uttam Galva. We never considered ourselves a promoter as we had no management involvement or board representation and furthermore sold our shareholding. It is only natural therefore we should be declassified on the stock exchanges which has been done following the relevant processes. We note the latest attempt to delay the process has not succeeded with bids to be submitted in 2 April. ArcelorMittal plans to submit a bid as part of the revised offer process although we continue to believe our original offer is eligible. Our track record and long experience in the steel industry make us a highly credible bidder for Essar Steel India able to add value to the growth and development to the Indian steel industry,” said a spokesperson for ArcelorMittal.