Lenders of Electrosteel Steels to identify strategic investor by Dec

13 November 2015

The lenders of Electrosteel Steels Ltd (ESL) expect to identify a strategic investor by the end of December. At ?9,600 crore, ESL represents one of the biggest stressed assets of the Indian banking system.

Banking sources told BusinessLine the process of identifying an investor and negotiating a management change and debt restructuring is likely to begin soon.

The lenders have asked the London-based fund house First International Group Plc, which recently expressed interest in ESL, to make a presentation later this month.

Timeline for completion

“The lenders have to complete the process of identifying an investor and initiating a management change by January 2016 to meet RBI norms for strategic debt restructuring. The banks need to be convinced that the intending strategic investor, after taking over the management, can complete ESL’s integrated steelmaking project and run a sustainable operation over the long term,” said a source engaged in the exercise.

As part of debt restructuring, the stakeholders have to fix a ‘sustainable debt’, and convert the balance loan into long-term instruments with a specific coupon rate and tenure.

Wire rope plant

However, the lenders and potential investors will have to take a call on whether a fresh investment of ?1,600 crore to complete the DRI (direct reduction iron) plant is necessary, considering that ESL is already producing liquid steel via blast furnaces, the sources said. Apart from the DRI plant, ESL is yet to make operational its wire rope plant. The latter, likely to be commissioned in December, is expected to boost the company’s topline. Tata Steel, which had earlier considered taking over ESL and was making due diligence, has not made a firm offer yet. “We intend to hear from the two likely interested parties by December to begin our processes,” the source said.

At 40 per cent, the SBI has the maximum exposure to ESL’s stressed asset of 9,600 crore. There are also 26 other lenders. The cost and time overrun in completing the steel making project at Bokaro in Jharkahand, lower steel product prices and burgeoning finance costs have hurt ESL. The sources also pointed out that for the removal of the current promoters, who hold a 45.23 per cent stake in ESL, the lenders have to forego the pledge on their stakes.