India’s Steel Ministry is eyeing a restructuring of the debt-laden, loss-making Rashtriya Ispat Nigam Ltd (RINL) – popularly called Vizag Steel. Around ₹1,640 crore has already been provided for initial bailout by the Ministry to service some borrowings (interest on loans) and provide working capital to the steel-maker that has debt (bank loans) and vendor dues (to raw material suppliers) of “at least ₹18,000 crore”, a senior Ministry official told businessline.
The payments were made to ensure continuity of operations since “RINL was on the verge of closure”, the official said adding that the fund infusion will see the company through “till December”.
SBI Capital Markets (SBI Caps) has been roped in as a consultant that will be preparing the viability report based on which funding and restructuring of RINL will be carried out. The report is expected by the end of this month.
Incidentally, this means, divestment plans has been put in abeyance; while there are no immediate plans for merger with any other CPSE steel-maker.
“The aim is to keep RINL as a going concern. Debts have piled up to the tune of ₹18,000 crore and the Ministry is discussing a long-term revival plan. SBI Caps will submit its report, likely by the end of this month,” the official said.
In FY23, the company’s independent auditors raised concerns about the company’s ability to continue as a “going concern”, and indicated the entity “is facing cash-flow problems”.
Failure to Service Debts
Earlier this year, India Ratings downgraded RINL’s bank facilities from ‘BB+’ to D (expected to default soon) on delay in the servicing of principal and interest repayment of term loans by June (of around ₹400 crore plus).
In view of the high debt, and poor operating metrics, the consortium of banks – led by the State Bank of India (SBI) — had refused any further extension of working capital or fresh loans.
“There was a point where banks were on the verge of categorising their borrowings to RINL as bad debt. The company had failed to service loans and interest dues. It was not getting additional cash or working capital from banks. So that it where the Ministry stepped in. Around ₹1140 crore of payment was made to banks – as interest on borrowings, and ₹500 crore was given to RINL as grant (for working capital) to ensure operations continue,” the official said.
Attempts At Revival
In order to secure working capital, RINL divested its forged wheel-making unit at Raebareli – built at a cost of ₹2,250 crore, to the Railways earlier this fiscal. The deal included a cash component of ₹800-900 crore (approximately) and transfer of debt to the tune of another ₹1,000 crore, sources said.
At the time of this acquisition by the Railways, RINL had debt of ₹20,300 crore (including dues to vendors).
The steel-maker tried to enter into a commodity loan and outsourcing arrangement with Naveen Jindal-led JSPL but even then it failed to clear dues to the vendors. Apart from the forged wheel plant, the Vizag unit of the steelmaker has three blast furnaces of which two “are now idle” ; while the third one is working at a much lower than expected capacity, the official said.
“Most of the cash received from the Railways went towards paying bank loans,” the official said.