Creditors of debt-laden Bhushan Steel Ltd are asking the company to sell its integrated steel plant in Dhenkanal, Odisha, to raise cash and repay some loans, three bankers with knowledge of the development said.
The suggestion was put forward by the creditors to the company at a meeting of a core group of lenders with Bhushan Steel’s management earlier this month.
“The Odisha plant will have to go. Liquidity is anyway tight, this sale should be able to reduce some of the debt and get some cash flowing so things can move in the right direction,” said one of the persons cited above, a senior official at a public sector bank. He requested anonymity because the discussions were confidential.
Bankers estimate that selling the plant could raise about Rs.15,000 crore, less than half the debt of Bhushan Steel at the end of the last financial year. As of 31 March, the company had debt of Rs.35,226 crore.
“No meeting of Joint Lenders’ Forum (JLF) of Bhushan Steel has happened in this month,” a spokesperson for the company said in a one-line response to an email seeking details of the lenders’ meeting with the company and the suggestion to sell the Odisha plant.
All three bankers quoted above, however, said the core committee of bankers met with the company’s management in the second week of November.
The 51-bank consortium set up the JLF to manage the company’s debt after Bhushan Steel’s vice-chairman Neeraj Singhal was arrested in connection with a loan-for-bribe scandal.
The Central Bureau of Investigation (CBI) arrested Singhal on 7 August on charges of bribing Syndicate Bank chairman S.K. Jain to get loan approvals. Jain himself was arrested on 2 August, along with Ved Prakash Agarwal, chairman-cum-managing director of Prakash Industries, chartered accountant Pawan Bansal and three others. On 1 October, those accused in the bribery case received bail from the Central Bureau of Investigation court.
The JLF is being led by Punjab National Bank (PNB) and State Bank of India (SBI). SBI has exposure of Rs.6,000 crore to Bhushan Steel. PNB has not disclosed its exposure.
On 18 August, bankers met to take stock of the account and asked the company to sell non-core assets—assets that aren’t central to its main steel business—to raise cash and pay debt. Bankers have now veered around to the view that selling non-core assets will not be enough.
“The company had volunteered to sell its assets in Khopoli, Maharashtra, as part of its debt management plan, which the lenders rejected since it wouldn’t fetch enough money for the company to get back on its feet,” said a second public sector banker. He also declined to be identified.
A third public sector banker, also on conditions of anonymity, confirmed that the steering committee of lenders met with Bhushan Steel’s management in the second week of November, to discuss the path ahead for the company. The steering committee is a smaller group of five bankers representing creditors with the highest exposure to the company.
To be sure, while bankers are asking the company to sell the Odisha plant, it is up to the company to take a final decision, given that its debt hasn’t been classified as a non-performing asset by creditors.
Banks can only force the sale of assets if a company has defaulted on its loans and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act has been invoked.
“The Odisha plant is a strategic unit and a much bigger asset for the company. If run at full capacity without any problems, it can also be the most profitable unit for Bhushan Steel. The company will thus be very adamant about not selling it. We should wait and see who gets their way,” said an analyst with a local brokerage, on condition of anonymity.
Bhushan Steel is India’s sixth largest steel maker with an installed capacity of 5.6 million tonnes (mt) of steel, mostly flat products, from plants in Uttar Pradesh, Odisha and Maharashtra.
The company embarked on an ambitious capacity expansion in Odisha for a 5 mt integrated steel plant in 2007, but in November last year after an explosion, the state pollution control board stopped phase three operations at the project. The Odisha plant is now functional with its phase three expansion complete, according to industry executives.
The production loss dented sales and by the time the pollution control board gave its consent in January to restart operations, the delay hit profitability and cash flows, according to a Care Ratings report in March this year.
“There have been reported cost overruns on phase III project with the company spending Rs.7,515 crore (including exchange fluctuation of Rs.777 crore) on the project up to 31 December as against the estimated project cost of Rs.6,583 crore,” Care said.
In the quarter ended 30 September, Bhushan Steel reported revenue of Rs.3,038.88 crore, higher than Rs.2,372.84 crore reported in the same period a year ago. The company had a net loss of Rs.297.2 crore during the second quarter, compared with a net profit of Rs.60 crore reported in the year-ago period.
Source: Livemint
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