Es­sar Steel strug­gles to ex­e­cute plan to im­prove fi­nances

The Pak Banker - - COMPANIES/BOSS -

Debt-laden Es­sar Steel In­dia Ltd is see­ing early signs of a turn­around but is yet to con­clude its plans to bring in a new in­vestor and con­tin­ues to ne­go­ti­ate with banks to com­plete the re­fi­nanc­ing of its debt.

The steel maker, which has been clas­si­fied as a non-per­form­ing as­set by a few lenders, had in Novem­ber last year put out a com­pre­hen­sive plan to im­prove its op­er­a­tions and fi­nan­cials. But the plan is still a work in progress.

"Es­sar Steel's lenders have ap­proved loans worth Rs.14,500 crores un­der the (5/25 re­fi­nanc­ing) scheme. The com­pany has re­quested the lenders for cov­er­ing the bal­ance Rs.15,000 crores for which lenders have sought clar­i­fi­ca­tion from Re­serve Bank of In­dia (RBI) and the same is awaited," said a spokesper­son for Es­sar Steel in an email re­sponse.

The RBI guide­lines al­low re­fi­nanc­ing un­der the 5/25 scheme only for term loans of in­fra­struc­ture com­pany and work­ing cap­i­tal loans can­not be re­fi­nanced un­der the scheme. It is not yet clear what part of Es­sar Steel's re­main­ing Rs.15,000 crore in loans falls in the work­ing cap­i­tal cat­e­gory. Stress on Es­sar Steel has been build­ing up for the last three years. Steel mak­ers have been hit by slug­gish do­mes­tic and global de­mand, along with a re­cent surge in cheaper im­ports.

But things are look­ing pos­i­tive, ac­cord­ing to the com­pany.

"Pro­duc­tion has dou­bled since Novem­ber and is cur­rently op­er­at­ing at 70% ca­pac­ity uti­liza­tion. This has re­sulted in sig­nif­i­cant im­prove­ment in EBIDTA mar­gin which has im­proved to 18%-20% from 5% in Novem­ber last year," said the com­pany in a press re­lease on Wed­nes­day. Since Es­sar Steel is a pri­vate com­pany, the fi­nan­cial de­tails are not dis­closed to the ex­changes. EBIDTA (Earn­ings be­fore in­ter­est, de­pre­ci­a­tion, taxes and amor­ti­za­tion) mar­gins is mea­sure of com­pany's op­er­at­ing prof­itabil­ity.

The re­lease added with the com­pany has achieved an op­er­a­tional turn­around through im­proved pro­duc­tion, sales and mar­ket­ing and cost im­prove­ments. But the turn­around has not been quick enough to pre­vent the com­pany from be­ing tagged as a non­per­form­ing as­set (NPA) in the books of some banks.

"We are gen­er­ally stan­dard, but there are a few banks where tech­ni­cally we have been made an NPA be­cause of the guide­lines is­sued by the RBI. Oth­er­wise, by and large, the ac­count in stan­dard," said Jatin­der Mehra, di­rec­tor, Es­sar Steel In­dia Ltd in an in­ter­view over phone on Thurs­day, adding that the ac­count was la­belled as non-per­form­ing in the quar­ter ended De­cem­ber 2015.

On whether more banks will fol­low suit, Mehra said, "..right now we can­not say, be­cause we dis­cussing that is­sue with the banks." In Novem­ber, the com­pany had out­lined a com­pre­hen­sive plan which in­cluded a sale and lease­back of cer­tain as­sets, 5/25 re­fi­nanc­ing, equity infusion and rop­ing in a strate­gic in­vestor. Of this, the plan to sell and lease back as­sets has hit a RBI hur­dle.

"The RBI has re­cently is­sued gen­eral guide­lines gov­ern­ing sale and lease back trans­ac­tions by cor­po­rates which ef­fec­tively re­stricts the cor­po­rates from un­der­tak­ing monetization of as­sets through this mech­a­nism. The com­pany is there­fore eval­u­at­ing al­ter­na­tive mech­a­nism," the com­pany said in its email re­sponse. As part of the turn­around plan, the pro­mot­ers of the com­pany had in­fused Rs.1,500 crore equity and an­other Rs.1,500 crore is pend­ing. The com­pany on Thurs­day said pro­mot­ers have agreed to in­fuse the re­main­ing Rs.1,500 crore and it will be brought in af­ter con­sult­ing its lenders.

In ad­di­tion, the steel maker is also on the look-out for an in­vestor, ac­cord­ing to a per­son fa­mil­iar with the mat­ter. "We are about to start the sale process. It is cur­rently un­der works. We have been send­ing out feel­ers to in­vestors and strate­gics. The sale will de­pend on what kind of in­ter­est we end up gen­er­at­ing as steel sec­tor in gen­eral is un­der­go­ing lot of pres­sure which is why it is tak­ing time to launch the process," said the per­son re­quest­ing anonymity. Mehra said bring­ing in an in­vestor is one of the many op­tions un­der con­sid­er­a­tion but de­clined to share fur­ther de­tails.

In Novem­ber, the com­pany had ap­pointed ICICI Se­cu­ri­ties and SBI Cap­i­tal Mar­kets as ad­vi­sors to help iden­tify and in­duct strate­gic or fi­nan­cial in­vestors.

Find­ing an in­vestor in the cur­rent mar­ket may be dif­fi­cult. "We are not re­ally wit­ness­ing any trans­ac­tions in the steel sec­tor as it is fac­ing a glut at this point in time. There is no sig­nif­i­cant move­ment in deals un­less do­mes­tic buy­ers try and con­clude some­thing. But go­ing for­ward we might see some ac­tiv­ity in those cases where SDR (strate­gic debt re­struc­tur­ing) has been en­forced by banks," said Pramod Ku­mar, man­ag­ing di­rec­tor of Bar­clays Cap­i­tal In­dia. Ku­mar was not com­ment­ing specif­i­cally on Es­sar Steel. Es­sar Steel has a to­tal out­stand­ing debt of close to Rs.30,000 crore, the com­pany had said in Novem­ber.

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