Bhushan Steels cold rolled coil project bags Rs 650-cr FI loans

Suresh Nair

Mumbai, Aug 10: Financial institutions (FIs) led by ICICI have sanctioned a Rs 650-crore loan to Bhushan Steel and Strips (BSS) for its 5 lakh tonne per annum export-oriented cold rolled coil project. BSS’ Rs 750 crore project is being set up at Patalganga in Maharashtra.

With this, FIs like ICICI and IDBI have increased their exposure to the steel sector even after reportedly having “exhausted” their exposure limits. Industry analysts feel that the move will only add to the already existing over-capacity situation in the CR steel market both domestically and internationally.

IDBI’s exposure to the steel sector is 14.3 per cent and officials had earlier gone on record saying that IDBI will not fund any upstream or downstream steel business. ICICI’s official spokesperson had also said that the institution is not keen on any lending to the steel sector. ICICI already has an exposure of over seven per cent and has disbursed Rs 12,816 crore in the steel sector.

In the present scenario all steel companies funded by these FIs have found it difficult to repay loans because of poor market conditions. The FIs have only recently restructured some of their loans to the steel companies.

BSS’ plant at Patalganga will manufacture downstream products like cold rolled steel and galvanised steel, 70 per cent of which will be earmarked for exports. This new cold rolled (CR) steel plant with a capacity of five lakh tonne is likely to create a glut in the CR steel market in India.

“Companies which had earlier planned to set up such mills have already shelved their plans” industry sources said. Automobile grade galvanised steel is also under severe pressure as growth in the automobile industry has been stagnant, analysts added.

Analysts say that the industry is currently reeling under an overcapacity situation in the galvanised steel segment. India has a total capacity of 2.7 million tonne of down stream steel capacity.

The domestic demand is merely 1.2 million tonne, and the current production levels stand at 2 million tonne, leaving a gap of around 8 lakh tonne of unsold galvanised steel.

Of this, around 5 lakh tonne is exported, leaving a demand-supply gap of around 3 lakh tonne. The domestic market is, however, not in a position to absorb the surplus production. Besides, most cold rollers are looking at the export market especially after the Tatas entered the market for automobile grade galvanised steel this year.

However, BSS says it will export 70 per cent of its produce, adding another 1.5 lakh tonnes to be sold in the domestic market.

BSS plans to diversify in the fast growing western region and enhance its exports. The company presently has its plants in the northern region. This has hampered its export realisations as the products are freight-sensitive.

The company plans to make use of the Patalganga facility to cater to the European, US and Middle East markets.

The plant will include a 12 MW power plant to meet its energy requirements, for which the company has approached the state government. The company has already acquired 50 acres of land for the project and has requested the government to relax its guidelines, which restricts industries within two km radius of river banks.