The debt laden Bhushan Steel limited has plans to sell its non-core steel assets to prevent default on interest payments and continue its business operations. The company, which is in the midst of a crisis following the arrest of its Vice Chairman and Managing Director Niraj Singhal, in the Syndicate Bank bribery case, is expecting to garner around Rs 2,500 crore from asset sale that will enable the company to stay afloat and manage all its debt commitments for next one and half to two years period.
The total debt in the books of Bhushan Steel is around Rs 40,000 crore with its debt- equity ratio hovering around 3.5:1, which is considered to be highly leveraged. The company needs around Rs 1,000 crore immediately for meeting its current working capital requirements to increase the capacity utilisation of its 2.5 metric tonnes per annum Odisha steel plant.
“We expect to get working capital support from banks by mid October. An alternate plan had been worked out earlier for asset sale,” said a senior company official seeking anonymity.
The company official said that it would keep oxygen plant under sale and lease deal to garner around Rs 1,200 crore if need be. Other auxiliary plants such as lime and coke oven battery could be considered for sale at later date. Analysts say the problem of stressed assets has swelled on account of promoters unable to raise fresh equity through the capital market to pay off their debts.
Meanwhile several lenders have invoked pledged shares by promoters to recover their money. The promoter has pledged 22 per cent of the equity against loan against securities (lAS). In last one month, the promoter holdings have come down from 70 per cent to 64 per cent.
“The asset sale plan can change depending on market conditions. If the steel market picks up or the company is able to go to the market to raise equity, the asset sale plan could be dropped,” the official added.
The World Steel Association has projected India’s steel demand to grow by 5.6 percent in 2014. The 12th Five-Year Plan has set aside $1 trillion investment, equivalent to 10 percent of GDP, on infrastructure. This will continue to spur steel demand in India. We are adding enough capacities to meet the country’s Vision 2025 requirement of 300 million tonnes.
The steel plant in Odisha was shut for around 6-7 months and is currently running at around 50-55 per cent capacity, and would take at least four months to ramp up production. “We are not able to run this plant at full capacity due to shortage of iron ore. We had entered in agreement with Odisha Government for raw material linkages. However, we have not been allotted any mines till date,” the company official said.
The Khopoli plant in Maharashtra was commissioned in 2004 and has been producing colour coated sheets, high tensile steel strappings, hardened and (aluminium and zinc coated sheet) for the first time in India. At its Sahibabad plant in Ghaziabad, Uttar Pradesh, it has a 1700 mm mill, which produces the widest sheets in India for the automotive industry. It has highly automated systems.
At its Meramandali, Dhenkanal plant in Odisha, Bhusan Steel produces hot rolled coils and has mills for hot rolling. Construction of the first phase is being carried out. Bhushan Power and Steel limited has seven plants at four locations – Chandigarh, Derabassi in Punjab, Bangihatti, near Dankuni in West Bengal, and Thelkoloi in Odisha.
Bhushan Steel is under scrutiny for alleged siphoning of funds. The bankers’ consortium has ordered a forensic audit and has demanded three nominee director posts, as part of their efforts to revive the company. The finance ministry has expressed concerns over haphazard lending by banks. The ministry feels banks may not have exercised due caution while lending to Bhushan Steel.