Banks take over Electrosteel – Report
Business Standard reported in 2013, when a consortium of 27 banks and financial institutions supported Kolkata-based Electrosteel Steels corporate debt restructuringproposal, it was meant to work. The company believed it would translate to cash generation of Rs 2,000 crore, enough to service the debt. However, problems with captive raw material supply and a near-crash in finished steel products in 2014 sent the plan haywire.
On Monday, lenders took management control of ESL by invoking the new strategic debt restructuring rules of the Reserve Bank of India. These allow banks to acquire control of a defaulting company by converting loans into equity, partially or fully.
Debt had risen to Rs 7,150 crore by March 2013 from Rs 4,110 crore at the end of FY11. Losses at the operating level had increased to Rs 87 crore in FY13, compared to a loss of Rs 3.5 crore in FY11. Interest expenses had risen from Rs 1.6 crore in FY11 to Rs 134 crore in FY13. Then, operating losses rose to Rs 172 crore in FY15. Interest cost grew from Rs 177 crore in FY14 to Rs 452 crore in FY15.
The major problem was captive raw material supply for its 2.51 million tonne steel and ductile iron project. ESL had an irrevocable offtake agreement with Electrosteel Castings, a promoter group company, for procurement of coking coal and iron ore at a cost-plus mark-up during the loan agreement with the lenders. In sum, ESL had an assured captive supply of critical inputs, required in any steel project. The contours of the arrangement between the two companies was somewhat like this — ESL was to source iron ore and coking coal from ECL for 20 years. Coking coal requirements for ESL were to be met from a mix of ECL's coking coal mine at Parbatpur (about 30 per cent) and the balance from other sources, according to the company's annual report for 2013-14.
ECL had been allotted the Parbatpur mine in Jharkhand with reserves of 231 million tonnes. It also had an iron ore mine and non-coking coal mine in Jharkhand. This changed with the Supreme Court order on deallocations and the new mining rules.
The company’s 2013-14 report said ESL was selling TMT bars, billets and pig iron in the open market. TMT bars now sell at Rs 26,500 a tonne, from Rs 32,000 a tonne a year before. Billets are Rs 26,000 a tonne vis-a-vis Rs 31,000 a tonne and pig iron at Rs 17,500 compared to Rs 19,000 a tonne. ESL had also lined up plans of tapping the international market and had even exported a few consignments of billets but the export market is not in better shape.
Source : Business Standard