Bhushan Jumps as Lenders Said to Near $3.7 Billion Restructuring

18 March 2015

Bhushan Steel Ltd. jumped the most in two weeks after people with knowledge of the matter said the steel producer’s creditors are in advanced talks to restructure about 230 billion rupees ($3.7 billion) of long-term loans.

Bhushan gained as much as 7.5 percent and was 3.9 percent higher at 84.25 rupees at 9:48 a.m. in Mumbai. Lenders led by State Bank of India and Punjab National Bank are discussing extending the tenor of about 200 billion rupees of Bhushan’s local-currency term loans to around 25 years, from an average eight years, three people said, asking not to be identified as the information is private.

The Indian steel industry has been battling record imports that have eaten into their market share, forcing them to cut prices. The Bhushan creditors may ask for a claim over Managing Director Neeraj Singal’s stake in the company and restrict dividend payments, the people said.

“If they get this loan issue sorted, then it will be like a monkey off their back,” Giriraj Daga, a portfolio manager at SKS Capital & Research Pvt. in Mumbai, said by phone Wednesday. “This has been a nagging issue and now they can focus on their core area of making steel.”

Total debt at Bhushan, which said last month it’s “constantly facing stress in cash flow,” more than doubled to 345 billion rupees in the four years through Sept. 30, data compiled by Bloomberg show. The plan from the group of Bhushan creditors, referred to as a joint lenders’ forum, involves changing the terms of the company’s rupee term loans as well as export credit agency-backed credit, according to the people.

The tenor of the debt would be extended under central bank rules for “flexible structuring” of loans to infrastructure and industrial companies, a program known locally as the “5:25 scheme.” The banks are still discussing the plan and details of the restructuring could change, the people said.

Capacity Expansion

Singal and his family have a 63 percent stake in the company, according to exchange filings. Bhushan Finance Director Nittin Johari didn’t answer three calls to his mobile phone seeking comment, while Singal couldn’t be reached on his office phone and didn’t reply to an e-mail seeking comment. Representatives for State Bank of India and Punjab National Bank didn’t immediately respond to requests for comment.

The banks plan to encourage Bhushan to free up funds by entering more sale and leaseback agreements for assets such as power plants, three of the people said. Last month, the steel producer said it entered a similar agreement for its Oxygen plant in the eastern state of Odisha to improve cash flow.

Bhushan is in the final phase of a $3.2 billion plan to boost its capacity and produce high-value steel products, according to a July presentation on its website. The company’s existing creditors are in the process of extending about 70 billion rupees of new loans to complete the expansion, the people said.

Federal Investigation

The Reserve Bank of India last year outlined a framework for the formation of a joint lenders’ forum to help banks recognize cases of financial distress earlier and take faster action to restructure a company’s borrowings.

India’s Central Bureau of Investigation said in August it opened a case into Bhushan’s Singal on suspicions of bribery. The federal law-enforcement agency has accused Singal of paying a 5 million-rupee bribe to seek favors from an official of state-owned Syndicate Bank after Bhushan allegedly defaulted on a loan repayment, according to an Aug. 6 court order.

The CBI hasn’t yet filed charges against Singal, who was arrested in August and released on bail the next month, according to exchange filings. Singal and Bhushan deny the allegations, Singal’s lawyer Ranjana Roy Gawai said by phone Tuesday from New Delhi.


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