Lenders to Kolkata-based Visa Steel have decided to convert a large portion of their loans into equity using the Reserve Bank of India’s (RBI) strategic debt restructuring (SDR) scheme, bankers aware of the development told FE.
Sources added that Brazilian steelmaker Gerdau has shown an interest in acquiring a stake in the company. The company’s gross debt at the end of March 2015 stood at Rs 3,094 crore, up 10.5% over that in March 2014, Bloomberg data showed.
A senior public sector bank (PSB) executive confirmed a consortium of 20 bankers led by State Bank of India (SBI) has agreed on the restructuring. “We have an investment proposal from Brazilian steelmaker Gerdau and are examining it,” the executive said. The banker added the company had agreed to allow the loans to be converted into shares.
Among the lenders to Visa are Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank a few banks from the SBI Group and Syndicate Bank.
Headed by Vishal Agarwal as its vice-chairman and managing director, Visa Steel is by promoted by Visa Infrastructure and Visa International, which hold 45.58% and 21.63% of the company, respectively. An email sent to the company seeking comments on the development remained unanswered.
In FY15, the company reported a loss of Rs 273 crore on the back of Rs 1,260 crore in net revenues. The finance costs more than doubled to Rs 229 crore. Visa’s debt of around Rs 3,000 crore was restructured under the corporate debt restructuring (CDR) mechanism in FY13.
Gerdau’s annual report showed the company produced 18 million tonnes of steel in 2014 resulting in consolidated net sales for the year of R$42.5 billion, up 6.7%, driven primarily by the expansion in revenues generated in the North American market.
SDR rules allow banks to convert a company’s debt into shares at a price below the current market value or an average of closing prices in the 10 trading days before a decision is taken at the joint lenders’ forum. They can own up to 51% of the equity of the company. On Tuesday, the Visa stock was trading at Rs 14.44, down 4.24%.
Following rules put out by RBI in June, this year bankers have decided to try out a restructuring for a handful companies including Electrosteel Steels, Jyoti Structures, Lanco Teesta Hydro Power, Monnet Ispat and Coastal Projects.
According to the FY14 annual report, the company plans to expand capacity from 0.5 million tonnes per annum (mtpa) to 1 mtpa special steel at Kalinganagar in Odisha. The 0.5 mtpa special steel business includes production of hot metal, pig iron and other materials for supply to the automobile, construction, infrastructure, engineering, railway and defence sectors.
Agarwal had said in the annual report that in view of the losses suffered by the company due to high-cost raw material, weak product prices and the consequent impact on cash flows and ability to service loan repayments, the debts were restructured under CDR.