The resolution of Bhushan Steel will particularly benefit State Bank of India (SBI), the leader of the consortium of lenders to the beleaguered steel-maker, Moody’s Investors Service said on Friday.
The resolution of Bhushan Steel will particularly benefit State Bank of India (SBI), the leader of the consortium of lenders to the beleaguered steel-maker, Moody’s Investors Service said on Friday. Earlier this week, Tata Steel announced it has been declared as the highest bidder for Bhushan Steel. FE learnt from senior bankers that Tata Steel has committed Rs 35,000 crore in cash, for the acquisition. “The sale of Bhushan Steel, which is one of Indian banking sector’s largest non-performing assets, is credit positive because it will help improve banks’ asset quality metrics and sets a precedent for the resolution of the other non-performing assets, particularly in the steel sector,” Moody’s wrote in a note. Bhushan Steel is one of 12 large non-performing assets admitted by the National Company Law Tribunal (NCLT) for resolution under the Insolvency and Bankruptcy Code (IBC). According to the list of claims by financial creditors of Bhushan Steel on January 17, 2018, SBI’s claims stood at Rs 12,872.59 crore, of which, claims worth Rs 12,831.72 crore were admitted by the NCLT. Although Tata Steel did not disclose the final purchase price or the terms and conditions of the proposed transaction, Moody’s estimates that the purchase price could result in a haircut of around 25% for lenders to Bhushan Steel. “The Reserve Bank of India has asked banks to provide a minimum of 50% of their respective loan amount for the account by March 2018.
As such, a haircut of less than their provisioning cover likely will result in a write-back of provisions for the banks and help improve profitability,” Moody’s said. In addition, depending on the exposure of the individual banks to the accounts, Moody’s expects banks’ pro forma reported non-performing loan ratios as of December 2017 to improve by 50-80 basis points because the exposure will be converted into a standard asset. Apart from SBI, Punjab National Bank, Union Bank, Bank of Baroda and Bank of India are among the lenders to Bhushan Steel. About 40% of Indian banks’ non-performing assets are undergoing resolution under the NCLT, which started in July 2017. Within this 40%, the steel sector constitutes the largest industry, with a share of about 35% of these non-performing assets (NPAs). Within the steel sector’s NPAs, Bhushan Steel is the largest account representing about 40% share. Bhushan Steel has a combined steel production capacity of 5.6 million tonne per annum across its plants in Ghaziabad, Uttar Pradesh; Khopoli Maharashtra; and Dhenkanal, Odisha. The company’s debt stands at Rs 46,263 crore as on March 31 2017, according to Bloomberg data. It reported a net loss of Rs 3,614.8 crore in FY2017 on revenues of Rs 15,027 crore.