Elec­tros­teel Steels: A test case of RBI’S debt re­jig scheme


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The Strate­gic Debt Re­struc­tur­ing scheme in­tro­duced by the Re­serve Bank of In­dia is set to change the man­age­ments of the com­pa­nies which have failed to re­pay bank loans de­spite re­peated ex­ten­sions. What ails th­ese com­pa­nies and why is Kolkata-based Elec­tros­teel Steels, the first com­pany where lenders in­voked the strate­gic debt re­struc­tur­ing (SDR) af­ter the Re­serve Bank of In­dia (RBI) al­lowed banks to take man­age­ment con­trol of de­fault­ing com­pa­nies last year, set to get new pro­mot­ers?

Bankers have ze­roed in on Lon­don-based First In­ter­na­tional Group (FIG), part­nered by China’s Laiwu Steel Group, hav­ing a ca­pac­ity of 25-28 mil­lion tonnes (mt). The Chi­nese firm’s as­so­ci­a­tion with Elec­tros­teel Steels is not new. It was an equip­ment sup­plier to the steel plant and has re­ceiv­ables of Rs 100 crore, which would be con­verted into equity sub­ject to nec­es­sary ap­provals.

How­ever, there is a twist to the tale. While FIG was a unan­i­mous choice for bankers, it sprang a sur­prise on Jan­uary 27 at a lenders’ meet. The fund wants the change of man­age­ment to be out­side of the SDR mech­a­nism.

If lenders don’t agree, then ne­go­ti­a­tions with other com­pa­nies that had made of­fers, in­clud­ing Tata Steel, could be re­opened.

Sub­se­quent to the SDR mech­a­nism in­tro­duced last June, RBI came out with an­other cir­cu­lar for a non-sdr mech­a­nism. This al­lows banks to upgrade credit fa­cil­i­ties for bor­row­ers whose own­er­ship had been changed out­side an SDR to the stan­dard cat­e­gory, pro­vided the stress was due to op­er­a­tional or man­age­rial in­ef­fi­cien­cies.

The ba­sic dif­fer­ence, as pointed out by bankers, is that the SDR mech­a­nism is less flex­i­ble and lenders have a greater say. “The SDR route is al­ways ben­e­fi­cial for the banks, as they have a greater say in the com­pany as they are the ma­jor­ity share­holder,” Karan Sachdeva, an­a­lyst with RBSA Ad­vi­sors, ex­plained. Bankers are yet to de­cide whether it would ac­cept the FIG pro­posal of go­ing for the non-sdr route, but they are un­der pres­sure to make a suc­cess out of Elec­tros­teel Steels.

“It is ex­tremely crit­i­cal for lenders and new buy­ers to dis­cover a price so that the hair­cut is min­i­mal. If the new pro­mot­ers are in the same line of busi­ness or a busi­ness of strate­gic im­por­tance, it is ad­van­ta­geous for the lenders as well as the new pro­mot­ers,” said Vibha Ba­tra, group head, fi­nan­cial sec­tor rat­ing at Icra. A Reli­gare re­port sug­gested the hair­cut to at­tract a new pro­moter for Elec­tros­teel could be around 65 per

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