1. Steel companies seek comprehensive package to counter debt

Steel companies seek comprehensive package to counter debt

Faced with a staggering debt of over Rs 3 lakh crore, domestic steelmakers on Thursday sought a comprehensive steel package from the government, including a one-year moratorium on payment of interest and principal amounts.

By: | Published: January 8, 2016 12:08 AM

Faced with a staggering debt of over Rs 3 lakh crore, domestic steelmakers on Thursday sought a comprehensive steel package from the government, including a one-year moratorium on payment of interest and principal amounts.

“The moratorium will be a short-term measure that will help ensure continued operations of the steel industry while the various remedial measures are put in place and produce sufficient positive impact. It will be necessary step to see that a large part of the debt of steel companies does not become NPA,” representatives of the India Steel Association (ISA) said in a presentation to steel secretary Aruna Sundararajan.

JSPL chairman Naveen Jindal, Essar Group’s CEO Prashant Ruia and SAIL’s director, finance, Anil Chaudhray were among others who were present in the meeting along with ISA office bearers. Detailing a programme to reduce the industry’s debt burden, the industry captains said “sustainable” portion of the same must be deemed to consist of long-term debt, as well as working capital required to run the business at optimum capacity level and to generate a pre-determined debt service coverage ratio (DSCR).

The remaining debt, which could be termed as the balance debt, is proposed to be repaid over an extended period by converting it into redeemable preference shares, with a nominal coupon rate, say 0.01%.

Steel firms said that taking into account the impact of various measures initiated by the government, a realistic assessment of profit generation ability of the steel companies from their operations could be made. Based on projected EBITDA and rescheduling tenor of loans linked to the useful life of the assets, under the 5/25 scheme, a sustainable level of debt to be ascertained. Also, all debt irrespective of project loan or corporate or any other loan should be eligible for 5/25. “Since the companies are expected to generate sufficient cash flows to meet the DSCR requirements of say 1.2 times, the repayment of sustainable debt would be made on periodic basis as per the revised amortisation terms based on the useful life of the assets,” ISA said.

The redemption of the redeemable preference shares (RPS), which could be done equally over a specified period, could be linked to the surplus cash flows of the company after servicing the sustainable debt, meeting internal working capital margin and critical capital expenditure requirements.

“In case of insufficient cash flows during a particular year from operations, redemption amount of the RPS will correspondingly get reduced and the balance commitment towards RPS for the year will be written-off by banks in their books,” it said.

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