Rs 44,000 cr exposure: Banks drop plan to sell Essar Steel loans

By: | Published: September 28, 2016 6:41 AM

The consortium of lenders to Essar Steel has decided recast the R44,000-crore exposure to the company rather than take a 50% haircut by selling it to Asset Care and Reconstruction Enterprise (ACRE), which is backed by Hong Kong-based SSG...

“We are not comfortable taking such a big haircut by selling to an ARC and prefer a recast plan which would mean a smaller haircut,” a senior banker explained. (Reuters)“We are not comfortable taking such a big haircut by selling to an ARC and prefer a recast plan which would mean a smaller haircut,” a senior banker explained. (Reuters)

The consortium of lenders to Essar Steel has decided recast the R44,000-crore exposure to the company rather than take a 50% haircut by selling it to Asset Care and Reconstruction Enterprise (ACRE), which is backed by Hong Kong-based SSG Capital. “We are not comfortable taking such a big haircut by selling to an ARC and prefer a recast plan which would mean a smaller haircut,” a senior banker explained.

Essar Steel had, at a recent meeting, requested banks to convert R12,200 crore of loans into preference capital and equity shares. While R9,000 crore was sought to be converted into preference shares to be redeemed after 12-18 years, the company requested the remaining R3,200 crore be converted into common equity. For the remaining R31, 800 crore, the company has sought a prolonged repayment period. Senior bankers told FE such a deep restructuring proposal, if approved by the consortium, would amount to a haircut of around 28%.

In July, FE had reported lenders were exploring the possibility of restructuring R31,000 crore of loans via the scheme for sustainable structuring of stressed assets (S4A) norms. They had in April appointed MECON, a government-run engineering and steel sector consultant, to conduct a techno-feasibility study into Essar’s operations. At the same time, they had not ruled out the option of looking for a buyer for the company.

Essar Steel reported gross revenues of R4,482 crore in the three months to June, up 12% year-on-year.Flat steel production in Q1FY17 was 1.22 million tonnes, up 48% over the same period last year. The management hopes to increase capacity utilisation substantially by March next year, producing 80% of its rated capacity.

Private sector lenders HDFC Bank, ICICI Bank and Federal Bank have already sold their loans to Essar Steel worth Rs 2,200 crore. Other lenders in the 20-member consortium include State Bank of India, IDBI Bank and Punjab National Bank, among others.

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