Even as D-day for a crucial meeting of the corporate debt restructuring (CDR) committee draws near (January 21), major differences have cropped up between debt-ridden steel manufacturers - Ispat Industries Ltd (IIL), Jindal Vijayanagar Steel Ltd (JVSL) and Essar Steel Ltd (ESL) - and the financial institutions (FIs).Industry officials are sceptical about the proposals to be cleared at the January 21 meet. Even if the proposals get cleared, it is not likely to meet the expectations of the promoters of these steel companies, say sources.The main bone of contention between the steel companies and the FIs is the writing down of equity by as much as 40 per cent and pledging of the entire promoters’ equity. According to industry sources, these companies are still in negotiations with the FIs over major areas of disagreement.However, this time around, the chances of the FIs budging seem unlikely. The lenders do not seem to have anything better to offer, commented a company official. One of the major reasons why the promoters are unwilling to write down equity is that the value of the same has already eroded on account of the colossal losses incurred by the steel companies year after year due to rock bottom steel prices. The promoters also fear losing control of their individual companies if they pledge their entire holding. Institutional sources feel that the write down of equity is important to prevent the equity base from bloating. Further, the sources added, the equity write down had to be implemented if a portion of the debt was to be converted into equity. The write down of equity will include the equity already held by the FIs.The industry sources feel that promoters would be averse to an equity write down, as they might lose out heavily. The sources argue that the equity of the company was offered to the public at a premium. A company official remarked that the market value of equity shares of these companies had already fallen below par.It may be recalled that the FIs had attempted a major debt restructuring for steel companies last year but fell short of implementing it. One of the major reasons for the earlier debt restructuring exercise not being implemented was the opposition by promoters to write down the equity.FI officials said one of the promoters had agreed to give a personal guarantee only if it was agreed to as part of the restructuring by the other steel companies also.The officials also contend that the pledging of promoter holding was essential to keep the activities of the promoters under check, and also to ensure their sincerity towards their respective companies.Currently, promoters have pledged only a part of their equity. The Mittals of Ispat, according to an earlier restructuring proposal, had to pledge 51 per cent of their equity, while the Jindals were to pledge over 30 per cent of their holdings to the FIs. The Ruias of Essar Steel had also agreed to pledge at least over 30 per cent of their holding.
