Essar steel gets 2 weeks to make new repayment plan

7 June 2016

Lenders to Essar Steel have asked the company to prepare a new debt repayment plan. Bank officials will meet later this month to examine the company's proposal to repay loans of around Rs 40,000 crore. While two senior bankers said the need to come up with a fresh repayment plan was conveyed to the company after a core committee of bankers met on May 30 at the offices of the State Bank of India (SBI), an Essar Steel spokesperson said the company was unaware of any such meeting.

Essar Steel had borrowed Rs 40,000 crore from 30 banks. The loan account has been classified as a non-performing asset after the steelmaker failed to repay on due dates. Essar Steel owns India's most modern steel production complex with a capacity of 10 million tonnes. The total investment in the steel plant, located in Hazira, Gujarat, is around Rs 55,000 crore.

In March, the company had presented a 'deep restructuring' plan to borrowers, which involved reduction in interest rates and a longer repayment schedule. "The consortium of lenders did not agree to this. Now, they want Essar Steel to stick to a deadline in preparing an acceptable repayment plan," said a senior bank official.

"We have said that we want to see money on the table. Promoters have to contribute substantially... only then will the lenders consider any proposal," said another banker present at the May 30 meeting.

Two investment banks — SBI Caps and ICICI Securities — which were appointed to identify strategic partners or financial investors for Essar Steel in November have been unable to do so. "We are surprised to receive your questionnaire on a 'bankers' meeting," an Essar Steel spokesperson said in an emailed response. "We are not aware of any such meeting that was held on May 30. Nor have we been informed about any outcome reached in the said meeting. It is true that we have submitted a proposal to our lenders. Our discussions thereon with our lenders is in progress."

Some lenders are unhappy that the company is seeking deep restructuring despite being offered an easy repayment package under the so-called 5:25 scheme. Under the scheme, on a loan of Rs 14,500 crore, the company would need to pay just 1 per cent of the principal component between 2016 and 2020; 2 per cent in 2021 and 2022. On another loan of Rs 15,000 crore, it would have to pay in the range of 5 per cent to 14 per cent of the principal amount between 2016 and 2022. However, it would need to pay in the range of 5 per cent to 14 per cent of the principal amount between 2016 and 2022. However, it would need to pay the entire interest component. The company's total debt of Rs 40,000 crore consists of three terms loans of Rs 14,500 crore, Rs 15,000 crore and Rs 10,000 crore.

Many banks, burdened with bad loans, have reported losses in the fiscal year 2016 and have vowed to recover dues by taking tough measures. In the past, bankers led by SBI had told Essar Steel that it would have to pay or accept a change in management.


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