Deal with group co for Rs 55 crore; Electrosteel plans to raise Rs 280 crore through efforts like sale or lease of properties to tide over crisis at steel unit
Troubled steel maker Electrosteel Castings is raising money by selling its prized real estate property at Chennai Boat Club area for Rs 55 crore to a profitable group outfit Srikalahasthi Pipes.
Electrosteel, whose group company Electrosteel Steel is country's first case of takeover of a sick unit by banks, plans to raise about Rs 280 crore through efforts like sale or lease of properties and some other means to ride over the crisis, sources said.
Electrosteel makes ductile and cast iron pipes and provides related construction engineering service with a capacity of 2.8 lakh tonnes of pipes and 2.5 lakh tonnes of pig iron.
Boat Club Road is the most costliest and coveted addresses in Chennai where the group owns around 9,180 sqft of office space, which has been valued at Rs 55 crore.
The property came to Electrosteel on account of its acquisition of Shakti Pipes in early 80s, a cast iron pipe maker with a plant at Elavur near Chennai.
The Elavur unit went on to emerge as the largest producer of cast iron spun pipes in India.
In difficult times, such property has come in handy and the property would now be transferred to a group outfit Srikalahasthi Pipes, earlier known as Lanco Industries, which would use it for its head office cum guest house.
Srikalahasthi Pipes is a profitable venture of the Electrosteel group, which holds 48.54% in its equity share capital.
It earned a post tax profit of Rs 37 crore during the September quarter against Rs 18 crore a year back and recently approved capital investment of Rs 100 crore for expansion of its existing its blast furnace at its plant along Srikalahasthi-Tirupati road.
With this deal, Srikalahasthi would be extending financial assistance to the group flagship worth Rs 280 crore over a period through renting out space, buying goods like pipes and fittings made by Electrosteel, conversion of coal into coke and similar such services.
The development comes at a time when Electrosteel has been downgraded to CARE A to CARE AA- due to "deterioration in financial performance in FY15 and lack of clarity with respect to funds to be received out of coal block deallocation leading to moderation in debt coverage indicators and tight liquidity position".
Even as its grapples with a difficult business environment, its troubled group outfit Electrosteel Steel is being taken over by the consortium of its lenders by acquiring 53.7% stake through conversion of debt to equity.
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