Listed entity may have to sell non-core assets to ensure cash flows; lenders looking at loan restructuring by increasing tenure
Lenders to Bhushan Steel are likely to take stringent measures, including asking the promoters to sell their personal properties and non-core assets of the listed entity to ensure that the company has sufficient cash flows on its balance sheet.
Bankers are also looking to extend the tenure of the loans of the steelmaker, which slipped into trouble after its managing director was named accused in a bribery case. "Bhushan Steel may have to sell off its non-core assets including power plants that are not captive, service plants and personal assets that promoters may have to save to the company which is highly leveraged," a banker who is part of the consortium of lenders to Bhushan Steel said.
Nitin Johari, director finance at Bhushan Steel, speaking to dna, denied any plans of selling personal property of owners for raising funds. "The company generates Rs 1,100 crore to Rs 1,200 crore of cash flows every month and all the plants except the Odisha plant are running to capacity. We are also making regular repayments to the banks," he said.
With close to Rs 40,000 crore of bank money at stake, lenders have formed a steering committee with representations from State Bank of India, Punjab National Bank, Bank of India, Bank of Baroda and IDBI Bank to closely monitor the functioning of the company. Two bankers from SBI and PNB are already on the board of the company.
However, bankers fear that the loan may slip into a default with the company posting net loss of Rs 141.63 crore in the quarter ended June 30 as against a net profit of Rs 76.26 crore in the same period a year ago.
Bankers said the company has properties in Chandigarh and Delhi. However, the company refuted this. Johari said, "The promoters have no properties in Chandigarh and Delhi. The promoter family only has an ancestral home which they have been living since 1992."
He denied giving any commitment to bankers to put personal properties on the block. A banker who is part of the consortium of lenders said, "The company needs to cooperate with bankers to take whatever steps are required to ensure cash flows. The company went on an aggressive expansion so they also have to sell off these power plants which are not captive."
The company blames the fire at its steel plant in Odisha's Dhenkanal district in November last year for its present state of affairs.
After the fire, Bhushan Steel, Johari said, had to implement a corrective action plan along with bankers to get out of stress.
The company was sanctioned around Rs 6,900 crore by banks for restarting operations at its Odisha plant which caught fire in November. The company has received Rs 3,000 crore of this, and the remaining portion of the funds are expected to be disbursed.
The steelmaker desperately needed funds to restart the closed 3 million tonne plant.
Earlier, the company was planning to sell its non-core assets and lease them back, or raise funds through qualified institutional placement, which would have led to reduction in promoter holding. However, now that option is closed as the company's shares have fallen almost 80% since the arrest of its managing director in a bribery case.
The company is also under discussion to sell and lease back its service plants like oxygen plants. Out of its three steel plants, the (Maharashtra) and Sahidabad (Uttar Pradesh) plants are running at 90% capacity. The third plant at Dhenkanal was shut for 6-7 months and is currently running at 55% capacity, and would take at least four to six months to completely ramp up, Johari said.
"We are not able to run this plant at full capacity due to shortage of iron ore. We had entered in agreement with Odisha government for raw material linkages. However, we have not been allotted any mines till date and a legal battle is currently on," Johari said.
The company is currently buying iron ore from the market. On being asked about the company plans to generate additional funds, Johari said, "I don't think our loans will slip into NPAs. Every month we are making payments. Our commitment is to take up all plants to maximum capacity and ramp up Odisha plant very fast. We are generating around Rs 1,200 crore every month from sale of steel products," Johari said.
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