The debt restructuring plan for Electrosteel Steels (ESL) has hit a roadblock, with six out of the 27 banks in the consortium raising concerns over the recast of nearly R6,414 crore in debt, admitted to the CDR cell on September 30 after months of discussion.
The difference of opinion among banks surrounds a sum of R159 crore that six banks were asked to contribute towards an additional infusion of R1,307 crore, which ESL asked as a part of the restructuring package. The six banks, including Oriental bank of Commerce, Bank of India, Bank of Maharastra, Dena Bank, J&K Bank and ICICI Bank, have voiced concerns about adding more exposure to the company. The remaining banks have agreed to bring in their share of fresh funds needed by the company.
As per the terms of the recast, ESL’s promoters have been asked to bring in equity worth R220 crore in return for an agreement to reduce the average interest rate on the loan to 11-12% from the 13-14% currently. A separate working capital loan was also to be part of the package.
“Previously they went for capacity addition and asked for additional loan without taking approval. I am not convinced about the group and did not even want to approve the restructuring. I do not want to throw good money behind bad money,” a senior executive at Bank of Maharastra told FE.
According to the minutes of the government-appointed project management group, which met on December 5, each of these six banks turned down the proposal to lend more money to the company. OBC declined the request to take on an exposure of R71.12 crore while Bank of India refused to contribute another R31.60 crore. Bank of Maharashtra and Dena Bank also did not want to lend the extra R19.89 crore and R18.37 crore sought. ICICI bank declined a request of R9.31 crore.
?This is the early stage of restructuring and we can voice our concerns. We usually do not want to add exposure to a company which we are not sure of,? a senior Bank of India executive said.
ESL ran into financial troubles due to the delay in the completion of its 2.51-million-tonne-per-annum integrated steel and DI pipe mill. The company has cited a change in the visa policy for Chinese workers and lack of adequate funds as the reasons behind the delay. In 2012-13, the company’s net loss nearly doubled to R280 crore as its interest outgo jumped by over 67%.
Banks have become stringent in approving debt recast cases in recent months due to the large number of companies seeking restructuring. Some of the cases that were not successfully restructured include the R1,632-crore recast proposal of Varun Industries, the R2,450-crore restructuring plan of KS Oils and the R660-crore proposal of Koutons Retail.