Federal Bank has sold its loans to Essar Steel worth Rs 70 crore to Edelweiss Asset Reconstruction Company (ARC), sources told FE, adding the sale happened in December. It is the second bank to sell Essar Steel loans to an ARC after HDFC Bank offloaded loans of Rs 550 crore last year.
In FY15, Essar Steel reported a net profit of Rs 467 crore while its interest bill was Rs 4,257 crore; the firm’s gross debt stood at Rs 32,050 crore at the end of March 2015.
Other lenders in the 20-member consortium include State Bank of India, ICICI Bank, IDBI Bank and Punjab National Bank. Bankers had restructured their exposure to Essar Steel via the corporate debt restructuring cell in 2002 but the company exited the cell in 2006.
In Q3, Federal Bank sold three bad loans of Rs 225 crore. The other two accounts had an outstanding loan size of Rs 109 crore and Rs 30 crore. Federal Bank managing director and chief executive Shyam Srinivasan recently told analysts, “When we have finished Q2, we signalled that we had one large account which we are putting through a sale to an ARC. And during the course of the quarter, the two other large metal accounts that we were concerned, we have recognised that also.”
He explained that Q3FY16, in some senses, is a watershed quarter in terms of recognising the stress on the corporate book. “And whatever we saw as pain has been addressed and we believe that with this we should be able to look forward with confidence and move on,” he said.
Sources added that no other bank has put Essar Steel loans for sale to ARCs.
The steel producer has been trying to reduce its interest cost and had dollarised $2 billion of its debt last year through external commercial borrowings and the export securitisation route, resulting in savings of over Rs 700 crore annually since the interest rate is lower at 6% compared to 12% on the rupee loans.
Meanwhile, lenders were able to sell bad loans worth Rs 7,000 crore in the first half of FY16, while the total offering was Rs 48,000 crore.
Bloomberg had reported in November that Standard Chartered and other creditors to Essar’s promoters, the Ruia brothers, were seeking to sell off some of the about $3.5 billion in loans extended to the Essar Group conglomerate’s owners, citing sources. Essar Global holds stakes in group entities including Essar Oil, Essar Steel and Essar Power.