Lenders to Electrosteel Steels are finding it hard to decide on a buyer for the company with the Tata Group asking for a 50% haircut on the existing debt and a Singapore-based investor said to be interested in the company not willing to bring in equity capital but wanting to extend a loan instead.
Lenders to Electrosteel Steels are finding it hard to decide on a buyer for the company with the Tata Group asking for a 50% haircut on the existing debt and a Singapore-based investor said to be interested in the company not willing to bring in equity capital but wanting to extend a loan instead. Sources familiar of the development told FE that while the Singapore investor’s offer is more lucrative, since there is no haircut involved, most lenders want it to bring in equity capital. The Tatas have offered to infuse funds via cumulative redeemable preference shares, sources added.
Meanwhile, lenders have requested the Singapore investor to consider infusing some amount of equity while bringing in the remaining investment via debt. “Otherwise, the company’s borrowings will be more than R9,000 crore and it could slip into a debt trap,” a senior banker pointed out. According to Bloomberg data, the company’s net debt at the end of March 2015 was R9,208 crore, up 13% over the previous year. State Bank of India (SBI) leads the consortium of 27 bankers with an exposure of R2,500 crore.
Sources also said that both the potential investors have sought a refinance of Electrosteel’s debt under the RBI’s 5/25 scheme and have also requested for an 18-month moratorium on interest payments.
Lenders FE spoke to said that the strategic debt restructuring (SDR) could also be used to take over the company, but only once a new investor had been lined up. Bankers confirmed to FE that the company had delayed payments of interest by over 60 days and consequently the exposure has been classified as an SMA-2 (Special Mention Account) account in line with the rules.
The Tata Group and a Singapore-based investor are doing a due diligence of Electrosteel Steels with a view to buying a stake in the company, a senior company official had told FE. Sources familiar with the developments added that the management of Electrosteel had met SBI chairman Arundhati Bhattacharya on June 26 to discuss the proposals. Bhattacharya is believed to have told the company that her bank, together with other lenders, would evaluate both proposals.
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. 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 in FY15.
According to a banker, the Tata Group wants to buy out the promoter’s stake at a cheaper valuation than that of the Singapore investor. “However, the promoters are in favour of the Singapore-based investor because they would like the top management to remain whereas the Tatas would, in all probability, bring in new management,” the banker added. 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. In the joint lenders’ meeting held in May 2013, it was decided by all the lenders that the company should apply for a loan recast. 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).