Big Disappointment for the Shareholders of ESL after NCLT Resolution Plan

ESL After NCLT Resolution
Many big analyst in the market were so much bullish about the story of steel companies which were debt ridden to make fortunes for shareholders after government setup a fast NCLT courts to give resolution plan to sell the bad asset of these companies to bail banks(lenders) out of trouble due to mounting NPAs from Steel sector. Everyone in the market were giving big targets for companies like Bhusan Steel, Monnet Ispat, Electrosteel Steels which were under NCLT resolution. However, the first result of NCLT resolution for Electrosteel Steels was a shocker for the shareholders. The lenders have taken a big chunk and shareholders got a peanut of their investment. Before the resolution plan ESL total outstanding shares were roughly around 280 Cr.

Below is the detail of the resolution plan of ESL.

  1. Vedanta Star, the group entity of Vedanta, would infuse Rs5,320 Cr ,into ESL. Of this Rs. 5320 Cr Rs3,515cr would be in the form of an loan and Rs1,805cr in the form of equity.
  2. The Capital Restructuring of ESL as per Resolution plan.
  • First, the company will issue roughly around Rs.740 Cr shares at FV=Rs.10 to lenders and convert the debt into equity.
  • Now, after this infusion ESL will have total outstanding shares of roughly around 980 Cr Shares( 240 old + 740 new) at FV=Rs.10.
  • Then existing capital would be reduced from FV=Rs.10 to FV=Rs.20, and shares would be consolidated in the ratio 50 shares of Rs.20 to 1 share of Rs. 10( To understand this let us do a quick mathematical calculation:  I have already mentioned that total outstanding shares of ESL were roughly around 980  Shares at FV=Rs.10, after capital reduction this will reduce to 980 Cr shares at FV=Rs.20. Then 980Cr/50=19.6 Cr Shares will be outstanding for ESL at FV=10 after consolidated.
  • As of now we have understood that after applying the formula of NCLT the previous 980 Cr Shares of ESL at FV=Rs.10 have reduced to 19.6 Cr shares at FV=Rs. 10.
  • Now Suppose , a retail investor who has bought 7000 Shares of ESL at FV=10 now will have only 7000/50=140 Shares at FV= Rs.10 in his demat account after this drama.
  • The ESL would be delisted and exit route would be given to shareholders by offering Rs.19 Paise per share before capital reduction. It means the retail investor in the above example will get 7000*.19= Rs.1330.

    Regarding electrodes steels two different price one is 11/= and another is 55/= which is correct I do not understand

      There is a price difference between the exchanges which is beyond our understanding.

    It’s not justify with retail investors it’s like a sofecticat cheetiing /robbery openly

      I completely agree with you Dinesh bro but what retail investor can do when NCLT has already given its verdict. We have to be extra cautious in our approach to share market to remain safe and do not lose our hard earned money.

    Delisting of shares will happen. The price at which it happens will be clarified in few days. So stay connected to our forum for next updates.

      i purchased 1000 shares in april, after Capital Reduction the remaining shares are only 20.Please Guide me

        Brother, it is nothing you and me can do about the proceeding of NCLT. I am also a shareholder in it. So I would advise please keep on holding it till any further updates come. The Share is hitting UCs on daily basis at 5%. Nothing can be concluded at this stage as being the first case scenario of NCLT. Nobody in the market knows where it can go. So I would advise to keep it as you have now nothing to lose. Keep visiting here and we will keep updated if any info. comes.

    This is really nasty plan for investors.
    This will definetely discourage people to invest in equity.
    Why entire burden should come to share holders

      Vibhuti bro sometimes it is the greed of investors to lose money in the share market. We all know that ESL fate was hanging in balance in NCLT and outcome can be anything but still, retail investors were on a buying spree as if ESL will make them the millionaire. However, the pursuit of multi-bagger has become multi- begger now. As an investor one should be satisfied with a 20-25% return per year from the stock market which is enough to create wealth but the story is the opposite for many investors.