The Dalmia Bharat Group has expressed an interest in buying a stake in Electrosteel Steels, three bankers familiar with the development told FE. They added that First International Group (FIG), which had been eyeing a stake in the ailing steelmaker, had withdrawn its offer.
Without divulging details, a senior banker said the Dalmia Group’s proposal is similar to that made by the London-based FIG, which had sought a loan waiver of Rs 2,500 crore and conversion of close to Rs 5,000 crore into cumulative redeemable preference shares. At the end of March 2015, Electrosteel owed lenders a gross R10,235 crore. Lenders to Electrosteel are attempting to revive the loss-making company by roping in a new promoter. Last year, they decided to convert Rs 2,507.57 crore of debt into equity under the strategic debt restructuring (SDR) scheme.
Meanwhile, banks have already classified the exposure as a non-performing asset following the Reserve Bank of India’s (RBI) directions under the asset quality review.
According to people familiar with the developments, the Dalmia Group’s interest stems from its presence in refractories — housed in OCL India — whose main customers are steel companies. Meanwhile, it has also come to light that the promoters of the Dalmia Group and Electrosteel are related. According to the website of The Renaissance Group — one of the Dalmia Group’s offshoots — one of the two daughters of J Dalmia is married into the Kolkata-based Kejriwal family that owns Electrosteel.
In FY15, Dalmia Bharat reported a net profit of `25 crore on the back of `175 crore in revenues and reported a profit of `8.2 crore in Q3FY16 on revenues of `50.3 crore. Its gross debt stood at `8,480 crore in FY15, Bloomberg data showed.
The SDR guidelines allow banks to convert debt to equity at a value that is not less than its face value. In FY15, Electrosteel Steels reported a net loss of `624 crore on the back of `1,831 crore in revenues. Its interest expenses more than doubled to `452 crore.
The Dalmia Bharat Group had established four cement plants in pre-independence years, two of which were affected by the partition and independence. The two remaining plants operate as Dalmia Cement and it has an associate company OCL, formerly Orissa Cement Limited.
“We will take the proposal to the RBI because it could fall under related-party transactions,” one banker said, adding that arm’s length pricing will have to be looked into for this deal to go through.
The company’s subsidiary OCL is one of the largest refractory plants in India, covering a wide range of products for use in the ferrous and non-ferrous industries. Its customer base spreads from iron and steel to the cement, aluminium, glass, copper, chemicals and hydrocarbon industries.
The 27-member consortium of lenders 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 `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 `1,300 crore to complete its 2.51 million tonnes per annum integrated steel and ductile iron (DI) 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 `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 `1,307.1 crore being sanctioned to help it complete the project (`1,107.10 crore for the capex and `200 crore for shoring up working capital).