Distressed steel manufacturer Visa Steel is scouting for a strategic investor, with Tata Steel believed to have done some basic due diligence for the firm’s 0.5 million tonnes per annum (mtpa) special steels unit at Kalinganagar in Odisha. The company has also requested lenders for additional assistance under the corrective action plan, a Visa Steel official told FE. Tata Steel has set up a 3-mtpa steel plant in Kalinganagar.
Tata Steel did not respond to FE’s queries.
The corporate debt restructuring (CDR) cell okayed a recast of Visa’s debt in FY13. Lenders recently agreed to provide the company additional credit facilities of Rs 3,062.81 crore, loan documents showed. The company’s gross debt at the end of FY15 was Rs 3,094 crore.
A senior executive confirmed the company was looking to rope in a strategic investor as a partner. Visa plans to transfer the special steels unit, with all its assets and liabilities, into a subsidiary called VISA Special Steel. In FY13 Visa had transferred 49% of its coke business into a separate special purpose vehicle, VISA SunCoke (formerly VISA Coke), through a slump sale with SunCoke Energy coming in as a strategic investor.
According to documents reviewed by FE, the indebted Visa Steel first restructured loans to the tune of Rs 3,000 crore under the CDR cell in FY13. The company’s net losses rose sharply to Rs 273 crore in FY15 versus a net loss of Rs 147 crore in FY14, even as sales fell 11% to Rs 1,260 crore. Finance costs shot up during the period to Rs 273 crore from Rs 147 crore in FY14.
Visa Steel’s plans to expand the capacity of the special steels unit from 0.5 mtpa to 1 mtpa if it is able to access funds from an investor. Special steel is used in the auto, railways and defence sectors and constitutes about 10% of the steel market in India. While it had plans to set up a fully integrated steel plant at Raigarh, Chhattisgarh, and a steel and manganese alloy plant in Madhya Pradesh, these are on hold owing to adverse business conditions.
Kalinganagar is a mineral rich area, accounting for 33% of iron ore reserves, 28% of coal reserves and 97% of chrome reserves in the country.
The company also has two other segments that comprise the ferro alloy and coke businesses. However, the special steels business is the highest revenue contributor at a little over 35%.
Banks have a total exposure of $50 billion towards the steel sector. Local prices of steel have come off by 10-12% in H2FY15 and the surge in imports has hurt sales.