A London-based fund house, First International Group Plc (FIG), has made a strategic investment proposal to the lenders of Electrosteel Steels Ltd (ESL). FIG is a SEBI-registered foreign institutional investor (FII) for the purpose of investment in India.

Banking sources confirmed the development to BusinessLine . According to the sources, the fund house expressed its willingness to take over the “potentially sick” ESL, and work with its Chinese technical partner Shandong Metallurgical Design Institute (SDM). This is the third conditional proposal that the 27-bank bankers’ forum for ESL has obtained so far.

The company, pursuing an integrated steel making project at Bokaro in Jharkhand, has amassed a debt burden of over ₹9,600 crore.

Debt-to-equity

The lenders’ forum has also initiated a move to convert a portion of the debt into equity, and introduce change in management control.

The new proposal is significant as SDM, which has done the designing of the plants and still provides technical support to ESL, is not bound to share technical information with the intending investor.

Tata Steel, one of the intending investors, is yet to complete the due diligence process for making a firm offer. Another intending investor, a Singapore-based stressed assets fund, however, seems to have lost interest, sources pointed out.

ESL’s accumulated losses at the end of 2014-15 stood at ₹1,356.33 crore against its peak net worth of ₹2,226.67 crore. Since this meant erosion of more than 50 per cent of the peak net worth, as defined by the Sick Industrial Companies (Special Provisions) Act, it has been informed to the BIFR (Board for Industrial and Financial Reconstruction).

ESL has added another ₹389 crore net loss in H1 of 2015-16.

Lenders of ESL initiated the move in July to convert part of the company’s borrowing into equity and pave way for management change.

SDR maintained that ESL’s loan account would remain “standard” and not an NPA, for the next 18-month period, despite default in interest payment in terms of the earlier approved CDR package.

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