Creditor banks set to sell Electrosteel to new owners
22 January 2016
Lenders of Kolkata-based Electrosteel Steels are close to finalising a new owner for the company, making it the first company where the strategic debt restructuring mechanism has been applied, after the Reserve Bank of India last year allowed banks to take management control of defaulting companies.
Lender banks will meet later this month to confirm the deal, reports quoting a source close to the development said, adding that the new owner could be a steelmaker with partners based in London and China.
The new owners will take over Electrosteel Steels completely from the existing promoters.
The current promoters of Electrosteel, the Umang Kejriwal family with a 45-per cent stake in Electrosteel Steels, will focus on Electrosteel Castings and Sri Kalahasthi Pipes (formerly Lanco Industries).
Bankers had, in December, approved conversion of a part of the company's debt into equity, after which Electrosteel Steels' board also approved conversion of debt aggregating to Rs2,507 crore into 2507.5 million equity shares of Rs10 each. The board also approved the increase in authorised share capital of the company. An extraordinary general meeting for shareholders' approval was held earlier this month to get the proposals approved by the shareholders as well.
Lenders had approached Indian companies, including Tata Steel, for this deal, but a deal could not be transacted at a price lower than the current book value.
Conversion of debt into equity would help companies by lowering their debt servicing burden and improving cash flows, bettering their long-term viability.
Electrosteel, started off as a steel castings and cast iron spun pipe manufacturing company, has over the years evolved into a pioneer in manufacturing ductile iron pipes and fittings.
With over 60 per cent of its products exported around the world and Electrosteel has its subsidiaries in 11 countries.
The company's problems started with raw material supply for its 2.51 million tonne steel and ductile iron project. It had an irrevocable offtake agreement with Electrosteel Castings, a promoter group company, for procurement of coking coal and iron ore at a cost plus mark-up during the loan agreement with lenders.
Electrosteel Castings had been allotted the Parbatpur mine in Jharkhand with reserves of 231 million tonnes. It also had an iron ore mine and non-coking coal mine in Jharkhand. But the Supreme Court order on deallocation of coal blocks in 2014 and the new mining rules changed the prospects for the company.
Electrosteel had to buy raw material from the market at high prices while finished product prices crashed. Operating losses rose to Rs172 crore in 2014-15 and interest costs grew from Rs177 crore in 2013-14 to Rs452 crore in 2014-15.
In 2013, a consortium of 27 banks and financial institutions had supported a corporate debt restructuring proposal for the company that would translate into cash generation of Rs2,000 crore. But the deallocation of coal blocks sent that plan crashing.
Till September 2015, the steel sector accounted for 21 per cent of the total number of corporate debt restructuring cases, having an aggregate debt of Rs 56,000 crore. The sector's share in total stressed accounts of scheduled commercial banks is 10-11 per cent.
The Bombay Stock Exchange has sought clarification from Electrosteel Steels Limited, in this regard and has advised the company to provide clarification/confirmation on the news in detail, including the whether such negotiations were taking place and whether the company is aware of any information that has not been announced to the exchanges.