International Steel Mills
Lenders Pursue Troubled Indian Steel Mills
Written by Sandy Williams
June 25, 2017
Galvanized steel producers Bhushan Steel and Essar Steel are in serious trouble with their lenders. Banks led by the Reserve Bank of India have initiated insolvency proceedings to recoup losses on delinquent accounts through loan reorganizations.
Bhushan reportedly has outstanding loans of $7.3 billion and Essar Steel $6.97 billion, according to India’s Economic Times. A third company, Electrosteel Steels, owes $1.7 billion. The three steel mills account for nearly half the bad loans in the Indian banking system.
“The fate of three large steel companies will be sealed soon. Lenders will seek mandate from the consortium to file for corporate insolvency,” a senior SBI official told the Economic Times. SBI plans to initiate formal action by June 30 with the National Company Law Tribune.
Once insolvency proceedings are initiated and admitted to the NCLT, the company’s board of directors is suspended and an insolvency resolution professional is assigned to operate the company and develop a restructuring plan. If a plan has not been submitted and approved by the NCLT within 270 days, liquidation proceedings begin.
“We feel that the insolvency proceedings for stressed accounts may lead to a consolidation in the steel sector, whereby stronger steel players with healthy financial profiles would have a chance to increase their market share by bidding for these assets at attractive valuations. In such a scenario, the steel sector, faced with a weak demand and overcapacity situation, would benefit in the long run,” said Jayanta Roy, senior VP of the international credit rating agency ICRA, as quoted by Bloomberg.
Despite its financial difficulties, Essar Steel appears to remain optimistic about its viability. Essar plans to capture a 25 percent share in auto grade steel within the next few years through strategic alliances and new product development, the company says.
Sandy Williams
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