Finance shortages, cost overruns, vendor disputes dog Usha Ispat

But UIL and its lenders were undeterred. It simply went ahead with the project with the minor adjustment that the Rs 225-crore sinter plant was deferred in 1997 — after two years of trying to tie up funding. In 1999, with finance still a problem, the sinter plant has been restored, and the project cost has ballooned to Rs 2,110 crore. The appraisal note says that the project would not be viable on a long term basis without the sinter plant — a question that was not asked when it was dropped for lack of funds. UIL now needs another Rs 910 crore to go ahead with the project. Of this, the promoters (the holding company Usha India Ltd promises to bring in Rs 129 crore and the remaining will come from institutions through a variety of instruments).

The IDBI note says that Usha (India), formerly known as Usha Rectifiers Ltd. is “profitable and hence does notenvisage any difficulty in contributing the amount committed — net profit was Rs 23.7 crore in 1998 and it has not paid a dividend for two years. Usha India, also proposes to divest part of its holding in Koshika Telecom and contribute the funds towards UIL. (The note however says that a mandate to Lazard Capital did not materialise in a sale for over a year and it has not gone to JM Financial to place Rs 150 crore of equity). It has also “indicated” plans to sell a rolling mill units of Usha Iron and Ferro Metals, a group company, to fetch around Rs 40 crore.

Now Usha India, too has an interesting background. It was one of the four controversial `mega’ issues of 1987, which led to the tightening of public issue regulation. The issue (Usha Rectifiers) had flopped miserably, leading to litigation by investors. It still retained the subscription money that was collected and simply dropped half its project violating the promises in its prospectus.

It soon changed its name (1989) and metamorphosed intoholding company of the group, diverting over Rs 522 crore as investment in group companies such as Usha Ispat, Malavika Steel, Koshika Telecom, Techno Telecom etc. UIL which made a rights issue at Rs 70 in 1996 is today quoted at Rs 12, Malavika Steel at a low Rs 2 while the profitable holding company Usha India is also quoted below par at Rs 7.75. All these have overdues to the institutions of Rs 30 crore, Rs 35 crore and Rs 4.2 crore respectively. Even Usha Udyog, which is quoted at Rs 40, has overdues of Rs 24 lakh. The note says that Malavika Steel, which has not been referred to the expert committee is also seeking rescheduling of its principal dues based on revised implementation schedules.

Finance was not the only problem with UIL. It has a dispute with Lurgi India, which was to be the main equipment supplier — the matter has now been referred for arbitration and was to be resolved at the end of last year. Thus, private-placed non-convertible debentures (usually placed with institutions) which wereto be redeemed in two installments of Rs 34 each in 1999-2000 and 2000-01 would be postponed.

The note also says that UIL’s project cost is higher than similar projects by Bellary Steels and SJK steel because of huge cost overruns and the Vacuum Degassing facilities. It still recommends further funding on the basis of a corporate guarantee from Usha India, the promoters bringing in Rs 269 crore, reconstitution of the board of directors, pledge of shares held by the promoters, a charge on the assets and margin on security on completion of work and appoint a Trust and Retention Agent. All of which were probably necessary before the “high interest burden” made the project highly leveraged.