Foreign Lenders of Jindal Steel and Power Exploring Possibility of Recalling Loans worth $550 Million

9 March 2016

The clock is ticking for Congress man Naveen Jindal.

A group of foreign lenders of Jindal's flagship Jindal Steel and PowerBSE -3.47 % (JSPL) are exploring the pros and cons of taking the extreme step of recalling loans adding up to $550 million from the company with the leveraged group failing to comply with loan covenants ahead of the repayment schedule that starts next month.

Among other things, this is understood to have been triggered by JSPL's inability to service $25 million unsecured loan from a large Japanese bank.

A loan recall - or accelerated repayment - puts the pressure on borrowers to pay back the loan at the earliest. Often, it can be a precursor to moving the court to recover loan.

Last week, officials from a consortium of leading global banks including Standard Chartered Bank, Bank of America, Deutsche Bank, BNP ParibasBSE 0.81 %, Barclays, ANZ, National Australia Bank, Bank of Tokyo-Mitsubishi UFJ, and First Gulf among others formally began a process to seek lenders consent for "accelerating" the loan repayment, people familiar with the development told ET. Some banks have already given the go ahead.

If two-third of the members of the lending consortium vote in favour of a recall, it will be among the largest such exercise in recent times.

There are around 18 banks who are part of the consortium.

A few days ago, the company - perhaps sensing the urgency - has submitted a plan to prune debt by selling several assets like aircraft and rolling mills and divesting either fully or partially its subsidiary Jindal Power Ltd, the Oman steel unit, and coal mines in Australia and Africa over the next 6-18 months. On the back of such strategic initiatives, the company has also proposed refinancing of these loans to push back the repayment deadline.

Responding to a detailed questionnaire from ET, a JSPL spokesperson said, "Considering negative financial results in the steel sector over the last 12 months, the company has been working with some banks/ institutions towards various options including the 5/25 scheme to meet all obligations. Notwithstanding the current financial strain being faced by Indian steel manufacturers owing to reduced prices and tepid demand, JSPL is taking all necessary steps to meet its financial commitments. In line with our company policy, we do not comment on speculative queries."

Speaking to ET, on condition of anonymity, one of the consortium officials, said, "We are seriously thinking to recall the loans and accelerate repayment as all covenants have been busted. We are not clear whether the divestment programme suggested by the company stick to a timeline as commodity prices have crashed. Most of the lenders have already provisioned for these loans as per their internal requirements."

In a parallel move, the local banks, led by SBI, have constituted a joint lender forum (JLF) to restructure JSPL's loans in February. According to banking circles, a precondition to the restructuring could be selling the power subsidiary. ET in its edition dated March 4th reported about JSPL in advance talks with Adani Power to sell its entire IPP portfolio for an enterprise value of Rs 18,000 - Rs 20,000 cr.

The two sets of loans (from foreign banks) -- $150 and $400 million -- were taken in 2011 and 2012 respectively by Jindal Steel and Power (Mauritius) Ltd (JSPML), the wholly-owned subsidiary of the listed JSPL. JSPML is the holding company for the group's sprawling overseas businesses in Oman, Australia, South Africa and Mozambique. Repayment for these loans is scheduled to begin from April 2016 and continue till May 2018. Both sets of loans are backed by the parent's corporate guarantees while  $150 million line has an additional security of 49% pledged shares of Jindal Mining SA that owns coal mines in Africa.

The hard-nosed stand of foreign as well as domestic banks reflect the anxiety of lenders to highly leveraged commodity and infrastructure companies.

"The steel sector has been impacted negatively by low sales realization. The financial results of the steel sector have been negatively impacted due to reduction in sales prices. JSPL results have also been impacted in the last 4 quarters. JSPL had excellent track record in nearly all its financial commitments over the years," said the JSPL official. In an earlier release, the company had said: "Consequent to cancellation of coal blocks by the Hon'ble Supreme Court of India and the payment of additional levies of over Rs. 3000 crores, the borrowing cost of JSPL has grown substantially, thus putting strain on its financials. Steel prices have been falling for 18 months and have fallen to a level where the Industry was not able to sustain itself."

As per the company projections for March 31st 2016, JSPL's consolidated debt is expected to be at Rs 49,338 crore (Rs 30,031 crore standalone) while that for the Mauritian arm alone is slated to be Rs 14,712 crore. The power arm JPL has debts of Rs 6708 crore.

Explaining the consequences of a possible recall, a banker said, "In the eventuality of a recall, it is unlikely that JSPML will be in a position to repay. Since these loans are backed by the parent JSPL's guarantee, the lenders will then invoke them - making it a direct obligation of the company as against a contingent liability to repay. If the parent also fails to comply, the lenders can potentially file a winding up petition against the company overseas."

Some lenders are hoping that some divestments would ease the stress for JSPL which was one of the most profitable steel players prior to the cancellation of coal mines. "There are no accusations of financial profligacy. So while lenders will safeguard their interests, their action should not precipitate the demise of a company," said another senior banker who said recall is one of the options.


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