Lloyds promoters to sell 14% stake, convert loan to equity

Promoters of the beleaguered Lloyds Steel are out to raise the much-needed working capital. They are in the process of offloading shares in the company, which would see their stake coming down to 36% from the current 50%.

At the same time, the company has plans to issue equity shares to its lender, the State Bank of India, in order to convert part of its loan into equity.

The company, in its board meeting held on Tuesday, agreed to offer equity shares on a preferential basis at Rs11.65 to three non-listed entities and the SBI by offering a total of 24.42 crore equity shares, thereby taking the total number of shares up to 66.45 crore.

While this would help the company raise working capital and also retire part of its debt, promoters face the prospect of losing their 14% holding.

During the board meeting, the company decided to offer 4.92 crore equity shares to the SBI in lieu of the loan owed to the bank. While this would offset part of the loan, the SBI would get a holding of over 7% in the company under the expanded capital. The SBI could not be contacted for details.

Besides this exercise, Lloyds would also be offering a total of 16.30 crore equity shares to two non-promoter entities with an equal shareholding of over 12% each. Also, up to 3.2 crore shares would be issued to a promoter group company.

“All this is being done to raise money for the company’s working capital requirement,” said a source.

Lloyds currently has a steel manufacturing capacity of one million tonne per annum (mtpa) which churns out 7,00,000 tpa of hot rolled coils and 300,000 tpa of cold rolled coils. Its engineering division is into designing and fabricating hydro, power and steel plants. However, it is the steel division that contributes close to 75% to the total revenues of the company.

The source said Lloyds currently requires close to Rs600 crore of working capital to run its steel plant and its cash flows cannot complement its need. The whole exercise of issuing equity shares will help the company raise close to Rs227 crore. The company had undertaken a similar exercise in November 2011, when it offered more than two crore shares to the Asset Reconstruction Company of India Limited (Arcil). This had helped the company walk out of Arcil and restructure almost Rs1,500 crore of its debt.

Lloyds Steel opted for restructuring way back in 2001 when the debt on its books had swelled up to approximately Rs2,000 crore.
After it walked out of Arcil, it was left with a measly debt of Rs500 crore for which negotiations have been still under way. Arcil currently holds 11.64% shares in the company, which is expected to come down marginally after Lloyds infuses more shares under the current exercise to raise capital.