Essar Steel which has borrowed heavily from banks is planning to bring in strategic/financial investors as part of a restructuring plan. The promoters — the Ruias — have also agreed to bring in more funds. In a meeting with the lenders earlier this week, the Essar Steel management discussed the issue of restructuring of its debt with the Joint Lenders Forum (JLF) that Essar Steel had sought, along with other options, which included the company’s continued efforts to bring in a strategic investor/partner.
“The promoters of the company reiterated their commitment to infuse additional funds to support the company’s operations and improve the capital structure, while emphasising that no further funding was required,” Essar said.
“During the meet with the lenders, Essar Steel apprised the banks of the significant improvement in its all-round performance,” Essar said. This is due to steep fall in gas prices, cost reduction initiatives, a rebound in steel prices post the MIP and other measures initiated by the government. All these factors have resulted in a significant improvement in the margins of the company, it said. The company, which was delisted from the stock exchanges, has appointed ICICI Securities and SBI Capital Markets as advisors to help identify and induct strategic/financial investors in the company, promoted by the Ruias.
This decision is in addition to previously announced plans to monetise certain non-core assets to raise equity and infuse additional funds for ramping up operations to full capacity. A Joint Lenders Forum had proposed restructuring the company’s debt last year, but some banks including HDFC Bank did not participate in the JLF and sold the debt to asset reconstruction companies. A portion of its huge debt was refinanced under the 5:25 scheme. In fact, lenders, led by SBI, have been holding discussions with borrowers who have taken huge loans but finding it to tough to service the loans. Lenders called several stressed borrowers for asset review meetings in the last two weeks in the aftermath of the Vijay Mallya’s wilful default.
Bank of India had last year classified Essar Steel as a non-performing asset for default of Rs 328 crore. SBI has the largest exposure of over Rs 5,000 crore to Essar Steel. According to Credit Suisse, Essar Steel’s debt was Rs 36,303 crore in FY 2015.
The Indian Steel Alliance representing the India steel producers has approached the government for a financial package, which, Essar says, is in line with the requirements of the steel industry. “Essar Steel representatives reiterated that the performance of the company suffered during the last 3 years due to several external factors that were beyond control, particularly the cancellation of committed natural gas allocations by the Government of India which forms the main feedstock for part of the steelmaking process,” it said.
However, the company said these challenges have been resolved and the company is witnessing significant improvement in its performance. The global steel industry is facing major headwinds due to falling steel prices and increased exports from China. The effects of these are already being seen in North America, Canada and Europe.
Major steel companies across the world are taking suitable steps to cut costs and raise money. Essar Steel is one of India’s leading integrated steel producers with an annual Pellet making capacity of 20 MTPA and steel making capability of 10 MTPA.