FIs not to help unviable projects

MUMBAI, Oct 27: The financial institutions, led by Industrial Development Bank of India IDBI have finally decided not to give further f...

MUMBAI, Oct 27: The financial institutions, led by Industrial Development Bank of India IDBI have finally decided not to give further financial assistance to the unviable steel projects. The decision was taken at the inter-institutional meeting held in Mumbai on Tuesday.

quot;We will pull the plug from the unviable projects. There is no question of supporting them. However, larger projects will get institutional funds provided the promoters come forward with fresh equity,quot; officials said.

The institution had their first round of meeting on September 26 to take stock of the situation and firm up the institutional view on the steel sector exposure. The FI chiefs also discussed a possible support mechanism through additional funding or reschedulement of old loans on a case-to-case to basis.

quot;We do not want to create a deadlock for the promoters provided they show keenness and motivation in completing the projects in accordance with the conditions laid out by us,8221; institutional officials said.

Theinstitutions have already framed ten commandments8217; for the steel sector exposure. The conditionalities include:

The promoters shall pledge their equity with the institutions which can be encashed in case of default;

The institutions can convert all additional loans into equity at par whenever they desire;

The additional loans can be prepaid if the cash flows improve subsequently;

A trust has to be created in which the revenues generated by the companies can be deposited and will be used for meeting the institutional dues;

The companies should allow the audit of their firms by the auditors to be appointed by the FIs and have to allow concurrent audit of their finances;

The promoters should facilitate inspection of the projects by engineers appointed by the FIs; and

The promoters have to seek permission from the FIs before initiating other projects. At Tuesday8217;s meeting, institutional chiefs took a close look at Usha Ispat, Rajinder Steels and Malvika Steel forpossible additional funding.

The institutions are insisting that promoters of steel companies should bear at least 20 per cent of the cost overrun as a precondition to fresh exposure in the steel sector.

Besides, the institutions have also decided to carry out a fresh viability study of the steel projects. They are also insisting that banks should continue to meet the working capital requirements of the projects while institutions draw up the plan to pump in fresh funds in the industry.

Story continues below this ad

According to institutional sources, while investment institutions like LIC, GIC and UTI were not keen in paring their exposure in the steel sector, the term-lending institutions led by IDBI want to curtail their exposure and put a cap on fresh exposures in steel industry as the quality of assets have left a mark on their balance sheets.

The total institutional exposure in the private sector steel sector is estimated to be over Rs 20,000 crore forcing the institutions to call the emergency meeting to discuss a bailoutpackage for the beleaguered steel industry.

The institutions have also moved the finance ministry seeking duty relief to the steel companies in the present context. quot;All we want is some sort of a comfort which will encourage us to take fresh exposures in steel industry,quot; sources said. The institutions have urged the government for a 15-20 per cent anti-dumping duty on hot-rolled products.

quot;This is a tough year for the steel industry. However, things will look up once the anti-dumping duty is imposed. We will not ditch the larger and viable projects,quot; sources said.