That the Umang Kejriwal-controlled Electrosteel Castings has to make way for a new promoter in the ailing Electrosteel Steels Ltd (ESL) was decided last year. The question is, who will take charge of the company and how.

The first China-made steel plant — which had undergone a corporate debt-restructuring programme two years ago — defaulted payments last year, forcing lenders to go in for a strategic debt restructuring programme (SDR).

Four groups of investors had expressed interest in the asset.

They are the London-based fund First International and the Chinese technology provider and contractor of the project, Shandong Metallurgical Design Institute (SDM); an unnamed Singapore-based Fund; Tata Steel and; former Managing Director of International Trading and Director at Stemcor UK Ltd, David Michael Faktor, backed by a South American steel major.

But the match-making is not easy for many reasons.

Costly route? As per the SDR programme, the ₹2,508-crore debt was scheduled for conversion into equities, taking the total paid-up capital from ₹2,409 crore to ₹4917 crore, earlier this month. But, it didn’t happen as bankers were undecided if that would protect their interests adequately.

The dilemma has a link to the question of ownership. As per SDR rules, the new promoter should buy the (after conversion) equity of the banks that amounts to 51 per cent of the share capital. It would help banks to recover their money, and allow the prospective promoter to get a clear majority.

But, will there be an adequate interest to pump in so much money to acquire shares of an ailing project? This is apart from the additional investment needs in the 2.5-million-tonne steel plant, and the dues payable to the project contractor SDM.

More importantly, ESL shares are now valued at less than ₹4 (on face value of 10) in the stock market (the market value should go down further in case of equity expansion). That means a 51 per cent market acquisition would cost bellow ₹500 crore.

Acquiring shares through SDR route therefore may prove costly to the prospective investor.

Other options On January 27, when the bankers sit for the next round of deliberations, they may have to take a call on the conversion issue. They may prefer to seek a fresh extension of deadline from the Reserve Bank, or consider other options.

One agenda pushed by some is to get out of the SDR programme and allow a prospective investor to buy 51 per cent stake through market acquisition.

Unlike the SDR route, this will not bring home any money to the bank. But if they can get a good match, who could run the project efficiently, banks will get payments against existing loans.

Banking sources admit the problems associated with the SDR route. However, they are still undecided about the future move. The other option is to invoke the SARFAESI Act and let the Asset Reconstruction Company to do the rest.

SDM holds the key? If the banks allow the new investor to go for market acquisition of shares, SDM may emerge as the dark horse. The Chinese company has a vested interest to see the plant running. This is both to showcase their technology to Indian market and, recover the payments.

Lenders are reportedly not keen in David Faktor’s proposal. Among the rest three, it is not known if the Singapore-based firm is still keen on the project.

Tatas were the first choice of the lenders. Tatas have also visited the plant number of times. Unconfirmed sources say, they are sensitive about Chinese technology and the project valuation.

To put it straight, the competition is now restricted among three. And, the First International-SDM combine is the most enthusiastic of them. They have work experience with the existing promoter group and have key knowledge about the steel company.

The next few days, or weeks, will decide if the the combine would clinch the deal.

Correction

We had headlined this report incorrectly as 'Electrosteel Castings to get new promoter'. The copy has been modified to correct this.

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