Lenders to Electrosteel Steels have classified the exposure as a non-performing (NPA) following the Reserve Bank of India’s (RBI) directions under the asset quality review, sources told FE. The company’s gross debt at the end of March 2015 was Rs 10,235 crore. An account turns into an NPA if repayment is overdue by more than 90 days. Subsequently, the bank has to set aside as provisions at least 15% of the loan.
Two senior bankers confirmed that Electrosteel has been classified as an NPA in the March quarter by the consortium of lenders led by State Bank of India (SBI). “We have not yet been able to change the management and RBI has asked us to classify it NPA,” one of the bankers said.
Following the reclassification, the company is not required to pay any interest. However, operations continue to be smooth, bankers said. Meanwhile, lenders have been negotiating with London-based First International Group (FIG) to acquire a stake in Electrosteel. However, the talks seems to have made no progress so far.
“It will become even more difficult to convince investors acquire a company that has turned NPA,” the banker explained.
Last year, banks had decided to convert Rs 2,507.57 crore of loans into shares under strategic debt restructuring (SDR). The central bank’s SDR guidelines allow banks to convert debt into equity at a value which is not less than the face value of the shares. In FY15, Electrosteel Steels reported a net loss of Rs 624 crore on the back of Rs 1,831 crore in revenues. Its interest expenses more than doubled to Rs 452 crore.
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 Rs 5,768 crore.
The company is promoted by Electrosteel Castings, which owns 45.23% of the equity. Electrosteel Castings is owned by the Kejriwal family. Electrosteel needs around Rs 1,300 crore to complete its 2.51 million tonnes per annum integrated steel and ductile iron 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. 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 the capex and Rs 200 crore for shoring up working capital).
