The Ajay Piramal-led Piramal Enterprises and the Renaissance Group, an offshoot of the Dalmia Group, are in the reckoning to jointly purchase a 51% stake in Electrosteel Steels, persons familiar with the development told FE.
Should the deal fructify, it would be the first successful strategic debt restructuring (SDR) transaction for banks and they would have succeeded in bringing in a new management team.
While Piramal Enterprises is expected to invest R1,400 crore in Electosteel Steels through its private equity arm Piramal Capital, the Renaissance Group will manage the operations. “The funds will be used to complete the expansion of the Bokaro plant and increase capacity by one million tonne to 2.5 mtpa,” a senior banker explained.
Electrosteel Steel’s gross debt at the end of March 2016 was R8,808 crore. The company reported a net loss of R326 crore on the back of R2,504 crore in revenues in FY16 with interest expenses rising to R525 crore.
The promoters of the Dalmia Group and Electrosteel are related. According to the website of The Renaissance Group, one of the two daughters of J Dalmia has married into the Kolkata-based Kejriwal family, which owns Electrosteel Steels. The Dalmia Group was founded by Ramkrishna Dalmia and J Dalmia. When the businesses of the Dalmia Group were split, J Dalmia took control of Dalmia Cement (Bharat) and Orissa Cement. AH Dalmia, one of the the sons of J Dalmia, started the Renaissance Group.
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Piramal Enterprises reported a consolidated net profit of R537 crore on the back of R3,742 crore in revenues in the first six months of FY17. Its total wholesale loan book stood at R19,170 crore with an average yield of 16% in H1FY17.
Emails sent to Piramal Enterprises and Electrosteel Steels remained unanswered.
Meanwhile, lenders have already classified Electrosteel Steels as non-performing (NPA) following Reserve Bank of India’s (RBI) directions for the asset quality review (AQR). Last year, banks had decided to convert Rs 2,507.57 crore of loans into shares under the SDR scheme. The guidelines allow banks to convert debt to equity at a value which is not less than its face value.
Earlier in September 2013, the consortium, which comprises 27 lenders, had restructured the company’s debt via the corporate debt restructuring (CDR) cell. Term loans restructured amount to Rs 5,768 crore and additional term loans of Rs 1,307.1 crore were sanctioned to help the company complete the project – Rs 1,107.10 crore for the capex and Rs 200 crore for shoring up working capital. Other lenders such as IL&FS and HUDCO had recast their debt outside of the CDR cell.
Electrosteel Steels is promoted by Electrosteel Castings which owns 45.23% of the equity. The company needs around Rs 1,400 crore to complete its 2.51-mtpa Integrated Steel &Ductile Iron (DI) Pipes project in Bokaro, Jharkhand.
The company’s problems began when it failed to draw down a project loan of Rs 824 crore because sanction from one of the banks had expired.
An SDR allows conversion of debt, by lenders, at a price below the current market value or the average of closing prices during the 10 trading days before the joint lenders’ forum (JLF) decision. Banks can now own at least 51% of the equity of the company and have up to 210 days to convert debt into equity.