The Tata Group and a Singapore-based investor are doing a due diligence of Electrosteel Steels with a view to buying a stake in the company, a senior company official told FE. Meanwhile, lenders to the Kolkata-headquartered firm, led by State Bank of India (SBI), are understood to be evaluating these proposals. Bankers confirmed to FE the company had delayed payments of interest by over 60 days and consequently the exposure has been classified as an SMA-2 (Special Mention Account) account in line with the rules.
Sources familiar with the development added that the management of Electrosteel had met SBI chairman Arundhati Bhattacharya on June 26 to discuss the proposals. Bhattacharya is believed to have told the company that her bank, together with other lenders, would evaluate both proposals. The consortium comprises 27 lenders who agreed to restructure the company’s debt via the corporate debt restructuring (CDR) cell in September 2013, while IL&FS and HUDCO recast their debt outside of the CDR cell.
In FY15, Electrosteel Steels reported a net loss of R624 crore on the back of R1,831 crore in revenues. Its interest expenses more than doubled to R452 crore in FY15.
According to a banker, although the Tata Group wants to buy out the promoter’s stake at a cheaper valuation than that of the Singapore investor, the lenders prefer the Tata Group because of its expertise in the field. “However, the promoters are in favour of the Singapore-based investor because they would like the top management to remain whereas the Tatas would, in all probability, bring in new management,” the banker added. The company is promoted by Electrosteel Castings, which owns 45.23% of the equity. Electrosteel Castings is owned by the Kejriwal family.
According to Bloomberg data, the company’s net debt at the end of March 2015 was R9,208 crore, up 13% over the previous year. Electrosteel needs around R1,300 crore to complete its 2.51 million tonnes per annum integrated steel and ductile iron (DI) pipes project in Bokaro, Jharkhand, and the stake sale would help it complete the project.
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. In the joint lenders’ meeting held in May 2013, it was decided by all the lenders that the company should apply for a loan recast. The company’s CDR package was approved on September 26, 2013, with additional term loans of Rs 1,307.1 crore being sanctioned to help it complete the project (Rs 1,107.10 crore for capex and Rs 200 crore for shoring up working capital).