Although lenders to the loss-making Visa Steel would like to convert their loans into equity via the strategic debt restructuring (SDR) mechasim
Although lenders to the loss-making Visa Steel would like to convert their loans into equity via the strategic debt restructuring (SDR) mechasim, the move is being resisted by the steelmaker. Sources told FE that bankers will meet the company this week to try and convince the management to agree to necessary changes to the loan agreement that will enable an SDR.
Vishal Agarwal, MD and vice-chairman, Visa Steel, told FE in a text message, “We are doing corrective action plan (CAP) not an SDR.” Visa reported a loss of Rs 273 crore in FY15 on the back of Rs 1,260 crore in net revenues. Finance costs more than doubled to Rs 229 crore and according to Bloomberg data, the gross debt stood at Rs 3,094 crore in FY15.
A senior banker with a public sector bank said a change of management was necessary to turn around the company and using the SDR could help. “We have to look for a buyer in the meantime,” he added. Sources said the company is unwilling to allow bankers to rework the loan agreement so as to facilitate the SDR process. The management of a Kolkata-based steel company — Electrosteels — had recently agreed to an SDR. The banker said Tata Steel had expressed interest in acquiring a stake in Visa but negotiations had not progressed.
Under a corrective action plan, bankers can infuse additional funds into a distressed company to help it sustain operations, this is also called rectification. At the same time, they can also refinance loans under the 5/25 mechansim or restructure the loan as they did earlier under the CDR or even otherwise.
According to the SDR rules, banks can convert debt at a price below the current market value or an average of closing prices during the ten trading days before the JLF decision. They can now own up to 51% of the equity of the company.
Visa’s debt of around Rs 3,000 crore was restructured under the corporate debt rectructuring (CDR) mechanism in FY13. Headed by Vishal Agarwal, Visa Steel is promoted by Visa Infrastructure and Visa International that hold 45.58% and 21.63% stake in the company, respectively.
According to the FY14 annual report, the company plans to expand capacity from 0.5 million TPA to 1 million TPA Special Steel at Kalinganagar in Odisha. The 0.5 million TPA 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.