Ispat project runs into roadblock

FIs are asking the group to disinvest in non-core businesses and raise funds as promoters8217; equity contribution as Ispat Steel has asked for a Rs 1,500 crore bail-out package from the financial institutions following a crippling recession in the steel industry.

Institutional sources say Ispat group8217;s power project inBhadrawati Phase I will have problems in achieving financial closure due to problem with its steel project. For its power project, Ispat was looking at a debt of over Rs 3,500 crore from the FIs.

At the same time, Ispat has almost pulled out of its telecom project by giving blanket control to its multinational partner Hughes of United States. The group was facing severe problem in raising funds on its own for the telecom project hence giving management control now and at a later stage equity control to the US company will help it to tie up funds, say FI sources.

FI insistence that the companies like Essar and Ispat, which have grown at a phenomenal pace in the last five years, that they should concentrate on their core business of steel has worked well. Essar Steel has also hired international consultant, DLJ to find a suitable buyer for its 500 mw captive power project at Hazira.

Similarly, Ispat group which has bid for projects all over the country has been asked by the FIs to focus on steel making.The financial institutions have a very high exposure in Ispat group companies, hence, in order to safeguard its own investments, they are asking the Ispat group not to diversify unnecessarily.

Ispat8217;s Bhadrawati project has met with problems from the day one. Earlier, the project faced stiff resistance from the environmental lobby, local politicians and now from the financial institutions.