Lenders to the loss-making Electrosteel Steels have agreed to use the strategic debt restructuring (SDR) mechanism to convert their debt into equity, the company said in a BSE filing on Monday. The quantum of debt to be converted into equity shares and the price at which it will be converted was not immediately known.
Ashutosh Agarwal, executive director, finance, Electrosteel Steels, told FE the decision had been taken at a joint lenders’ forum (JLF) meeting held on Monday. The company’s net debt at the end of March 2015 was R9,208 crore, up 13% over the previous year, according to Bloomberg data. State Bank of India leads the consortium of 27 bankers with an exposure of R2,500 crore.
According to SDR rules, banks can convert debt at a price below the current market value or at an average of the closing prices during the 10 trading days before the JLF decision. Moreover, they can own up to 51% of the equity of the company. On Monday, the Electrosteel stock was trading at R3.53 on the BSE, up 0.86%.
Agarwal said banks would come up with a package in the next three months which would then be implemented within 90 days. FE had earlier reported that the company had delayed payments of interest by over 60 days and as a result the exposure had been classified as an SMA-2 (Special Mention Account) account in line with the rules.
Bankers had told FE recently they were 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 unwilling to bring in equity capital, preferring instead to extend a loan. Sources also said that both potential investors had sought a refinance of the Electrosteel debt under the Reserve Bank of India’s (RBI) 5/25 scheme and also requested for an 18-month moratorium on interest payments.
Electrosteel Steels reported a net loss of Rs 624 crore in FY15 on the back of Rs 1,831 crore in revenues. Its interest expenses more than doubled to Rs 452 crore. The 27-member lenders’ consortium 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.
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).
* SBI leads the consortium of 27 bankers with an exposure of Rs 2,500 crore
* Electrosteel’s net debt at the end of March 2015 was Rs 9,208 crore
* Banks can convert debt at a price below the current market value
* Other option is to go for average of closing prices in the 10 trading days before the JLF decision