Bad loans: Lenders refer Bhushan Steel, Electrosteel, Essar to NCLT

Mumbai: A panel of lenders spearheaded by the State Bank of India (SBI) on Thursday decided the fate of three large bankrupt steel companies - Bhushan Steel, Essar Steel and Electrosteel Steels, by referring them to the National Company Law Tribunal (NCLT) for further action under the Insolvency and Bankruptcy Code (IBC).

The Reserve Bank of India had identified 12 of the 500 non-performing accounts (NPA) in the banking system for immediate “corrective action”. Of these 12, the above mentioned three collectively owe Rs 1 lakh crore.

Thursday’s decision follows after the RBI asked the panel of lenders to initiate action against the dozen bad loan accounts and refer them to the tribunal. This move is a part of the RBI and the government’s attempt at resolving the the problem of NPAs that has gripped India Inc and the banking sector.

Essar Steel, which is unlisted had a consolidated debt of Rs 37,284 crore. Bhushan Steel owed Rs 44,478 crore at the end of 2015-16. Electro Steel Steels stood at a debt of Rs 10, 274 crore at the end of March 2016.

According to a senior public sector bank executive, lenders would now have to examine the value of their assets and minimise the haircuts on these loans, reported the Business Standard.

Although, the steel sector has witnessed a robust growth in the last one year due to rise in steel prices and import duty on cheap Chinese imports, some steel companies could manage to pay the principal part of the loans.

According to a bank official, the bleak loan scenario in the steel industry would improve only after there is a rise in demand from construction and infrastructure sectors. It was learnt that SBI Capital Markets is planning to restructure some big-ticket steel companies who are swimming in troubled waters. These plans could be taken up as a pre-approved package before the proceedings at the tribunal start.

Debt-ridden accounts like Bhushan Steel, Essar and ElectroSteel had already submitted debt-review plans to lenders. According to the Essar proposal, the company would pump in investments of Rs 2,500 crore as fresh equity. This would include promoters’ contribution of Rs 800 crore and Rs 1,700 crore from a private equity partner. The lenders could then convert a part of its loans into equity. This would reduce the promoter’s stake from 100 per cent to 44 per cent. The proposal had said that nearly 52 per cent of its debt was sustainable. 

Electrosteel Steel also plans pump in fresh equity into the company from Abhishek Dalmia of the Renaissance group and infusion of another Rs 1,500 crore as loan from Edelweiss. 

All these proposals would be discussed at the NCLT, along with lenders’ proposals.

On Thursday, stocks of Bhushan Steel tanked by 10 per cent to Rs 69.15 on BSE, while that of Electrosteel Steels traded flat at Rs 4.42.