Aion Capital in talks with troubled Uttam Galva Steels for takeover

20 January 2017

Aion Capital Partners -- a joint venture venture between Apollo Global Management, one of the world's largest distress asset investors, and ICICI Venture is planning to throw a lifeline at the troubled steel maker Uttam Galva

Aion is in talks with the promoters of Uttam Galva SteelsBSE -4.93 % and their lenders to work out a comprehensive restructuring package for the company, said multiple officials aware of the ongoing negotiations.

The package would also entail fresh capital infusion of Rs 500 crore -Rs 1000 crore for working capital requirements and growth. Upon completion, Aion is set to emerge as the largest controlling shareholder in the listed company, the officials added. The company's EV stands at around Rs 8000 crore.

Spokesperson for Uttam Galva Steels and Aion declined to comment on the development.

Promoted by the Miglani family, Mumbai based Uttam Galva -- once a sought after mid-sized steel company that even boasted Lakshmi Mittal's Arcelor Mittal as a dormant co-promoter since 2009-10 -- is now in deep distress with ballooning debt and a sharp drop in profitability. It has also become an NPA for several of its 18 lender consortium, needing large scale turnaround. From highs of Rs 172 a share in 2010, the stock has crashed 82% and is currently trading at Rs 30.80.

Uttam Galva Steels has around Rs 5500 crore of bank debt. Another Rs 5000 crore is spread across other group companies. SBI is the lead in the consortium along with a clutch of banks including, PNB, Canara and Bank of Baroda and others. Of the total promoter holding of 60.87%, Arcelor Mittal still owns around 30% while the rest is held by the Miglani family.

After a joint lender's forum (JLF) decision last March the company was asked by its lenders to induct strategic partners and initiate a change of management across various group companies -- both listed and unlisted. The crisis for Uttam Galva has compounded in recent times as Mittal has been lukewarm to recapitalising the company. Miglanis too have been unable to bring in funds.

Flagship Uttam Galva Steels is among the largest makers of value added cold rolled, galvanised and colour coated steel in western India with 2 units in Khopoli Maharastra with a capacity of 1 million tonnes. Being a coastal plant, around half of its output is exported to the US, Middle East and Africa with the former being the largest market. The end users of the steel are auto, construction, white goods and appliances companies. The focus on US where Apollo has large steel sector exposure is is an added attraction, said sources.

The company posted a loss of Rs 1555 crore on revenues of Rs 8295 crore in FY16.

"Bilateral discussions are ongoing between the stakeholders. There have been meetings this week as well and there is a sense of urgency. Aion has suggested detailed structures which the lenders have to agree upon. Aion and Apollo are a pedigreed investors so the comfort among the lenders to push this through," said a banker on condition of of anonymity.

With its niche products portfolio, export focus and size, Uttam Galva may be an attractive proposition, feel sector analysts. But, there is still no guarantee that the discussions will translate into a deal, cautioned officials. Once completed this will be first instance of a distressed steel company management getting changed after JSW took over the ailing Ispat SteelBSE 0.40 %.


Aion has recommended that the banks stay on as the lenders and reschedule the average tenor of the loans for 15 years. The existing debt gets converted into three instruments namely normal term loans, zero coupon debentures and redeemable preference shares, according to officials in the know. At the end of 15 years, banks are expected to get paid out fully. In case, the deal size becomes larger then Apollo too may co-invest. Aion will bring n all the new money that is essential to kick start operations.

The final quantum of stake and haircut that the lenders have to take are still being worked upon. The funds are also hoping to get a relief from the stock market regulator Sebi in case the takeover triggers an open offer.

"In the previous steel down cycle, Ispat became the model case. It was the only one that got restructured. Now Uttam Galva can potentially be the one," said another official awareaware of the discussions.


Miglanis have also been in talks with China's Tidfore Heavy Equipment Group Company for a $150 million investment in privately held arm, Uttam Galva Metallics. In December 2015, the Miglanis had signed an MoU for expansion of Metallics' Wardha unit with South Korea's Posco but its growing indebtedness impacted project completion.  Uttam Galva Metallics has a capacity of 0.5 million tonnes (mt) with a plan to increase capacity to 1.5 mt. A million tonne steel production facility roughly costs around $1 billion. Posco and Tidfore are exploring the option of taking control of the business and expand operations. In case those talks fail, Aion and Apollo may also take over the Wardha operations.

Even though the government has provided some relief to the steel sector through minimum import price (MIP) and anti-dumping duties, with outstanding loans of around Rs 3 lakh crore from the steel industry, banks stare at a systemic crisis.

2Q FY17 has seen widening of losses at many steel companies even as MIP was extended... While steel prices have improved compared to FY16, the share of stressed debt in 2Q is still at 61% and 65% had interest cover wrote analysts from Credit Suisse in their India corporate health tracker on December 15th, 2016. "While stress recognition has been higher in the steel sector, with NPL and watch list at 40- 50% of loans, given the increase in stress in 2Q, there could be an increase in slippages within the sector and these could come from outside the watch list for banks like Axis, ICICI and even SBI. (Despite 60% of steel loans already NPL) they added.

The Aion Fund is an India-focused one established by an affiliate of Apollo Global Management, LLC together with ICICI Venture Funds Management Company Limited. The AION Fund, with approximately $825 million in committed capital, is currently one of the largest private equity funds in India. Considering co-investments, AION's assets under management have crossed $1 billion. AION India is the adviser to the AION Fund.