Lenders to Essar Steel have asked the resolution professional (RP) for information to substantiate the company’s demand for Rs 1,000 crore of fresh working capital loans, senior bankers told FE. The company already owes banks close to Rs 45,000 crore, and the Essar Group Rs 1.17 lakh crore.
Bankers said the committee of creditors believes the company can manage without the additional funds. “While the RP has asked us to consider the proposal, we have asked for more information that would explain the need for more credit,” a banker said.
The company’s management had asserted in the Gujarat High Court earlier this year an 80% capacity utilisation of the plant had led to a 42% increase in the Ebitda (earnings before interest, tax, depreciation and amortisation) in FY17. Prices of steel have rebounded smartly from their lows; currently they are ruling at $600 per tonne compared with $494 per tonne in November 2016.
An email to Essar Steel requesting a comment remained unanswered.
In August, the National Company Law Tribunal had appointed Satish Kumar Gupta of Alvarez and Marsal, India, as the interim resolution professional (IRP). The IRP has since been working on Essar’s debt restructuring plan on behalf of both State Bank of India (SBI) and Standard Chartered Bank. Of the `45,000 crore Essar Steel owes to lenders, Rs 31,671 crore was non-performing as on March 31, 2016.
While SBI leads a consortium of 22 lenders that account for 93% of the company’s debt, Essar Steel also owes around Rs 3,700 crore to Standard Chartered Bank. Essar Steel’s Mauritius-based subsidiary had borrowed from Standard Chartered, for which Essar Steel’s promoters were guarantors.
Banks have been unwilling to give fresh loans to companies against which insolvency petitions have been admitted. For instance, FE had recently reported that lenders to Bhushan Steel were not keen to sanction a fresh loan of Rs 500 crore.
Most private banks have sold their Essar Steel exposure to asset reconstruction companies, taking a haircut of more than 50%; most PSU banks have declared Essar Steel a non-performing asset.
Last year, Essar Steel had requested banks to convert Rs 12,200 crore of loans into preference capital and equity shares. While Rs 9,000 crore was sought to be converted into preference shares, to be redeemed after 12-18 years, the company requested that the remaining `3,200 crore be converted into common equity. For the balance `31, 800 crore, the company has sought a prolonged repayment period.