Lenders to the loss-making Electrosteel Steels are reluctant to sanction additional loans of Rs 1,400 crore sought by it. The company, which owes banks Rs 8,808 crore, had asked for another Rs 1,400 crore to be able to complete its Bokaro plant and increase capacity by 1 million tonnes per annum to 2.5 mtpa, sources told FE. The management reportedly told banks it would be in a better position to service the debt if it could increase capacity.
However, given Electrosteel’s Ebitda (earnings before interest, tax, depreciation and amortisation) was just R110 crore in FY16 on revenues of R2,504 crore, lenders are reluctant to take on additional exposure. “Although the plant is running at a capacity utilisation of 75-80%, they will not be able to service the loan,” a senior banker explained to FE. Electrosteel paid an interest bill of R525 crore last fiscal.
While bankers have tried to look for new promoters for the firm, the current state of the steel industry has left prospective buyers hesitant. Electrosteel reported a loss of R326 crore in FY16. As such, the exposure has already been classified as a non-performing asset (NPA) on the books of banks though they will need to increase the provisions to 100% by December 2016. Under the circumstances, lenders are loath to lend more.
Meanwhile, Steel Authority of India (SAIL) had, prima facie, agreed to run the company on an operations and maintenance (O&M) contract, although finer details are still being worked out, bankers said. Give how a host of promoters are unable to complete projects for one reason or another, banks have started roping in large firms including SAIL, NTPC and Tata Power to help complete them.
Last year, banks had decided to convert loans worth R2,507.57 crore owed to them by Electrosteel into shares via the strategic debt restructuring (SDR) route. Reserve Bank of India (RBI) guidelines allow banks to convert debt to equity at a value that is not less than its face value. Lenders have 18 months from the date the SDR scheme is effective to find a buyer for the company. Should banks fail to usher in a new promoter, the asset would be classified as an NPA.
Electrosteel’s 2.51 mtpa greenfield integrated steel and ductile iron (DI) pipes plant in Bokaro district of Jharkhand is under construction. A part of the plant facility (1 mtpa) has commenced production and is producing TMT bars, billets, pig iron and ductile iron pipes.
An email sent to the company remained unanswered and the management was not immediately reachable for a comment over the phone. 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. Term loans restructured by banks stood at R5,768 crore. Shares of the company on closed at R3.62 each on the BSE, down 8.12% from its previous close.