decision by the Industrial Development Bank of India (IDBI)
to halt the debt restructuring programme of Ispat Industries
and Jindal Vijayanagar Steel will have a domino effect
on other companies whose general restructuring proposals
are pending with the IDBI board. The companies include
Ispat Metallics, Usha Ispat, Malvika Steel and Bellary
In 1999, IDBI had approved the general restructuring proposals
for refunding mega steel projects. Following this, Ispat
and Jindal submitted a detailed restructuring plan that
had been accepted by the IDBI board. The debt restructuring
programme, including the conversion of debt into equity,
was one of the major items in the restructuring proposal
of Ispat and Jindal.
Industry sources say IDBI has taken this decision after
the finance ministry raised objections on the move towards
converting debt into equity. They say that IDBI has been
asked to revisit the proposal and put the conversion of
the debt restructuring on hold. But IDBI officials declined
to make any comments on this.
The sources say IDBIs move would put the restructuring
programme undertaken by other steel companies like Ispat
Metallics and Usha Ispat in limbo. Since the steel industry
is in the throes of a crisis, all the these steel companies
are looking for fresh-fund infusion from institutions.
Says an Ispat Metallics official: The steel prices are
already under tremendous pressure and the restructuring
exercise is the only possible way to prevent heavy losses.
According to a paper prepared by IDBI in 1999, the project
overrun of Ispat Industries is Rs 1,205 crore, from Rs
4,845 crore to Rs 6,050 crore. The existing institutional
exposure in this project is Rs 3,028 crore, of which IDBI
alone contributed Rs 894 crore. Ispat, however, required
an additional Rs 1,230 crore and IDBI has proposed to
contribute just Rs 328 crore.
In the case of Ispat Metallics the project cost has increased
by Rs 400 crore to Rs 1,840 crore. The institutions have
an existing exposure of Rs 1,345 crore, in which IDBIs
share was Rs 438 crore. Ispat Metallics has sought an
additional Rs 270 crore
and IDBI may consider an exposure of Rs 89 crore.
Jindal Vijaynagars project cost increased to Rs 5,215
crore from Rs 4,968 crore. The existing exposure of institutions
is to the tune of Rs 2,076 crore, which includes IDBIs
share of Rs 520 crore. In the additional requirement of
Rs 492 crore, IDBI proposes to contribute to the extent
of Rs 151 crore. As per the recommendations of the sub-committee,
the long-term viability of each project should be reestablished
after taking into account the project cost overrun.