CRI­SIS HIT STEEL MAK­ERS TURN TO NAREN­DRA MODI GOVT FOR DEBT RE­LIEF

Resource Digest - - RESOURCE DIGEST -

With nearly half of banks’ gross ad­vances of over R3.1 lakh crore to the steel in­dus­try un­der stress and three-fourths of these al­ready clas­si­fied as non-per­form­ing as­sets (NPAS), do­mes­tic steel­mak­ers have ap­proached the gov­ern­ment seek­ing a re­lief pack­age, re­ports Surya Sarathi Ray in New Delhi. They want the Re­serve Bank of In­dia to make the S4A and 5/25 schemes more flex­i­ble to im­prove their debt-ser­vic­ing abil­ity. The steel min­istry, sources said, has en­dorsed the pro­pos­als and dis­cussed it with the fi­nance min­istry.

Bhushan Steel, Es­sar Steel, Elec­tros­teel Steels, Visa Steel and Jai Balaji In­dus­tries are among the com­pa­nies con­tribut­ing to the banks’ stressed as­sets/npas. None of these com­pa­nies re­ported a post-tax profit in the first quar­ter of the cur­rent fis­cal.

The 5/25 scheme en­ables banks to ex­tend long-term loans of 20-25 years to match the cash flow of projects, while also re­fi­nanc­ing them ev­ery five or seven years. Sources said the steel com­pa­nies have de­manded that the el­i­gi­bil­ity thresh­old for us­ing the 5/25 win­dow be re­duced to out­stand­ing debt of R100 crore. Cur­rently, un­der the 5/25 scheme, projects where the ag­gre­gate ex­po­sure of banks or NBFCS to the project com­pany ex­ceeds R500 are el­i­gi­ble for 5/25 ben­e­fit. Most of the debt with sec­ondary steel­mak­ers in­di­vid­u­ally is be­low R500 crore.

Steel­mak­ers have also asked for amend­ing the S4A scheme to al­low for ex­ten­sion of work­ing cap­i­tal loans if the com­pa­nies have not de­faulted on in­ter­est pay­ment and con­ver­sion of over­due work­ing cap­i­tal loans into work­ing cap­i­tal term loans, re­struc­tured in line with other term loans. The com­pa­nies also want a mora­to­rium of three years on in­ter­est pay­ments and re­pay­ments so that op­er­a­tions could be ramped up. The S4A scheme de­fines sus­tain­able debt levels for stressed bor­row­ers and al­lows for bi­fur­ca­tion of out­stand­ing debt into sus­tain­able debt and eq­uity/ quasi-eq­uity in­stru­ments. The idea is to pro­vide up­side to lenders when the bor­rower turns around. The steel com­pa­nies have de­manded the cri­te­rion for sus­tain­able debt be changed to 30% or 50% of the li­a­bil­i­ties as on date. State Bank of In­dia has the high­est ex­po­sure to the steel sec­tor at Rs 1,34,352 crore as on March 31, 2016, fol­lowed by Pun­jab Na­tional Bank at R26,665 crore, ICICI Bank at R25,654 crore and Cen­tral Bank of In­dia at R8,323 crore.

Sens­ing that it would be dif­fi­cult for the steel in­dus­try to raise its Ebitda to in­ter­est ex­pense ra­tio to more than one now to be in a po­si­tion to ser­vice debts, the steel min­istry thinks some mea­sures like ra­tio­nal­i­sa­tion of taxes, low­er­ing power and freight charges and hiv­ing off non-core as­sets should be taken to raise Ebitda and lower in­ter­est rates.

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