How Uttam Galva Steels plans to reduce risk

Uttam Galva Steels is in the process of entering into a raw material supply agreement with JSW Steel to mitigate risks in the wake of insolvency proceedings. It has a raw material requirement of around ~350 crore a month, supplied by five companies, which would be replaced by one. ISHITA AYAN DUTT writes

The Miglani family-controlled Uttam Galva Steels is in the process of entering into a raw material supply agreement with JSW Steel, in a bid to mitigate risk to the company in the wake of insolvency proceedings.

“The agreement is a longterm agreement and is aimed at ensuring raw material payments are not stopped,” sources close to the development said. Uttam Galva has raw material requirements of ~350 crore a month, supplied by five companies which would now be replaced by one. The arrangement, however, is subject to approval of the company’s board and lenders.

Uttam Galva’s contingency plan will come into play if a professional is appointed to manage the company. A supplier, DF Deutsche Forfait, had filed insolvency proceedings against Uttam Galva in the National Company Law Tribunal a few months ago, under the Insolvency and Bankruptcy Code, 2016. Uttam Galva has, however, obtained a stay on proceedings till the next date from the National Company Law Appellate Tribunal.

Under the code, an interim resolution professional is appointed to manage the company and come up with a workable solution to repay loans within 180 days, which can be extended by 90 days. The board remains suspended. If a solution doesn’t emerge in 270 days, then it goes into liquidation. The independent resolution professional will take charge of day-to-day operations.

“The initial 45 days is critical for the plant. If there is a plant shutdown then it becomes very difficult to restore it. There will be an escrow account for the raw material arrangement with JSW, so that the plant keeps running, JSW’s money is not at risk and the banks will not be disturbed,” sources said.

Like most steel firms, Uttam Galva too ran into debt. In FY17, its debt stood at ~5,637.9 crore. Weak demand and a surge in cheap imports had taken a toll on most steel accounts.

Lenders wanted Uttam Galva to bring in a strategic partner and discussions were on with private equity players when the insolvency proceedings were initiated.

In 2009, the ArcelorMittal group had picked up a 33 per cent stake in the firm.