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Essar Steel ruling: PSU bank shares rally

The Nifty PSU Bank gained 3.28% to 2457.35 – the biggest one day gain since October 31.

ET Bureau|
Nov 16, 2019, 08.23 AM IST
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Agencies
BSE-1200
MUMBAI: Shares of PSU banks shrugged off worries over possible losses from Vodafone Idea's precarious financial position and rallied on Friday, boosted by the Supreme Court's ruling on Essar Steel.

The Nifty PSU Bank gained 3.28% to 2457.35 – the biggest one day gain since October 31. Central Bank of India, State Bank of India, Bank of India and Syndicate Bank led the gains on the index, rising 4-9%.

Analysts said most banks have provided significantly for their exposures to Essar Steel and given the recovery rate of around 90%, there should be significant writebacks.

big bang gains
“The judgement implies higher recovery for banks in case of Essar Steel and establishes the Committee of Creditors’ primacy in deciding the allocation of future proceeds from settlements,” said Nomura. The brokerage said recovery for banks in the Essar Steel case will be closer to 90% versus 60% as suggested by the NCLAT. State Bank of India, which has claims of over Rs 13000 crore on Essar Steel, will be the biggest beneficiary of this, followed by ICICI Bank which has direct exposure of Rs 2,300 crore and some claims through security receipts held with Edelweiss ARC, the brokerage said.

The Supreme Court said that ArcelorMittal’s acquisition of the ailing Essar Steel would take place as per the October 23, 2018 resolution plan of the acquirer. The apex court said the ultimate discretion on distribution of funds is with the committee of creditors which is favourable to banks.

“The setting aside of the earlier NCLAT ruling is a significant course correction, and financial creditors which had been impacted are now better placed. The order restores the contours of lenders’ claim on collaterals as per the contractual agreement and seniority of claims and also sets a healthy precedent for further resolution down the line,” said Lalitabh Shrivastawa, deputy VP at Sharekhan.
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