SAIL to take over Electrosteel

17 October 2016

State-run SAIL is set to take over the operations of Electrosteel Steels in a rare event of lenders taking charge of a debt-laden company and paving the way for similar moves at other firms where promoters are unable to repay loans.

While lenders led by SBI had approached SAIL to take over the operations for a fee, the PSU has taken time in conveying its decision. They said SAIL was now ready to take over the operations.

Electrosteel Steel had become an embarrassment of sorts for the lenders as it was the first case of banks where they were looking to take charge of operations and change the management under strategic debt restructuring (SDR). Talks had been initiated with some foreign players, including London-based fund house First International Group but the deal did not work out as the investors wanted to take over the company at a steep discount, something that the lenders were unwilling to do. Banks have an exposure of close to Rs 9,000 crore to the company and were forced by RBI to classify it as a non-performing asset. As part of the restructuring, lenders had last year decided to convert over Rs 2,500 crore into equity through the SDR route. In addition loans of around Rs 5,800 crore had been restructured.

With no takers for Electrosteel Steel, lenders were toying with the idea of transferring the company to an asset reconstruction company. Since RBI allowed SDR last year, banks invoked the provision in case of 21 companies but have failed to find buyers in almost all cases.

SAIL has been given an offer to enter into an operations and management (O&M) contract on a fee with the option of even taking over Electrosteel Steel’s plant at a later date.

The details of the O&M contract were not known.

Last year, as part of the clean up exercise initiated by RBI, the regulator had prodded banks to take control of companies and change the management apart from looking for new owners. But given the subdued global environment in the steel sector due to the slowdown in China and the subsequent price crash, there were few takers for steel assets, which were among the sectors that had the maximum debt stress.

Source – TOI