IDBI clears Rs 772 bailout for 6 steel companies

The IDBI board, which conferred with the three-member sub-panel this morning, approved reschedulement of loans for the hot strip mills of Essar Steel, Ispat Industries and Jindal Vijayanagar Steels Limited (JVSL). It also granted fresh loans to the pig iron plant of Ispat Metallics and the long products plants of Usha Ispat and SJK SteelCorporation Limited. The board also considered Essar Steel’s request for more funds for Essar Minerals, but deferred a decision on the project. The plea, said IDBI chairman G P Gupta would be examined afresh by an expert committee.

Essar Steel plans to spin off its iron ore pelletisation and beneficiation plant at Visakhapatnam, along with a slurry pipeline connecting the unit to the iron ore mines at Bailadila, into a separate company, called Essar Minerals. Gupta said an expert panel would be set up to “assess the profitability and viability of the project” and examine the need for a strategic partner in the venture.

The financial institution also sanctioned Rs 95 crore of term loans for Nagarjuna Fertilisers and Mayaspin Textiles on Tuesday.

The lead lender to industry has granted additional funds of Rs 328 crore to Ispat Industries, including the interest overdue on its existing loans of Rs 894 crore. The company’s Rs 4845 crore HR coils project has suffered a cost overrun of Rs 1205crore.

Ispat Metallics’ request for an additional loan of Rs 89 crore (including interest overdue on Rs 438 crore of existing loans) was also granted. The company’s Rs 1440 crore pig iron plant has suffered a cost overrun of Rs 400 crore.

The IDBI also granted JVSL’s request for Rs 151 crore of additional loans. The company has overshot the cost estimates of its Rs 4968 crore HR coils project by Rs 247 crore.

Usha Ispat has been granted Rs 316 crore of additional loans to tide over the Rs 565 crore cost overrun at its Rs 1425 crore pig iron and long products plant. The company’s existing borrowings from the IDBI are to the tune of Rs 368 crore.

SJK Steel Corporation Limited has been granted Rs 104 crore of fresh funds. The company’s Rs 636 crore long products project has overshot cost estimates by Rs 180 crore.

IDBI has granted Essar Steel’s request for Rs 92 crore of additional loans to tide over the Rs 811 crore cost overrun at its Rs 3933 crore hot strip mill. The company is committed to pay upthe interests due on its existing loans from the IDBI, which are to the tune of Rs 492 crore. Promoters will have to bring in a third of the additional funds required to complete the projects. They will also have to pledge their shareholdings with the IDBI to be able to qualify for the additional loans.

The IDBI loans come with other tough strings attached, like an option to convert 100 per cent of the additional loans into equity at par. Gupta pointed out that for the first time, the financial institution was imposing a right to bring about a change in the management of a company.

The IDBI would insist on reconstituting company boards where ever necessary, for instance, and retain the right to appoint its nominees, along with “experts and foreign consultants.” Gupta said the managements of the companies would be constantly under scrutiny.

The companies will have to maintain Trust and Retention Accounts, appoint lenders’ engineers and concurrent auditors, rotate auditors and improve their levels ofcorporate governance. The borrowers’ projects would also be subject to a monthly monitoring by the financial institutions.

The condition the IDBI is hell-bent upon is that funds diverted from steel to telecom or power ventures be brought back at once. The fresh loans would only be disbursed after the diverted funds were brought back, the IDBI chief told newspersons after the board meeting.

He admitted though, that the total diversion of funds lent for steel projects to other ventures was less than 10 per cent of the Rs 17,000 crore invested in new steel-making capacities. “We have told them to get out of some of their businesses, to bring back the money,” he said, without naming names.

Essar Steel is suspected to have diverted funds from its steel plant to telecom and Ispat Industries is believed to have transferred loans meant for steel into power generation.

Gupta said the IDBI board had been influenced by the Union Budget’s focus on infrastructure developing in granting more loans to therecession hit steel industry. The financial institution’s total exposure to the industry is Rs 6000 crore, or nearly 12 per cent of its total asset base he said.