Loss-making Uttam Galva Steels, co-promoted by the Miglani family, could soon be sold to settle its debt. The company’s shares rose 12 per cent to ₹33 on Thursday on news of a possible buyout by an overseas steel company.
Uttam Galva had earlier filed for BIFR protection to prevent lenders from initiating legal proceedings against the company. Global investors have evinced interest in acquiring stakes in debt-ridden steel companies as the prospects of metal demand in India appear to be better than in developed countries.
As of March 31, the consolidated debt of Uttam Galva stood at ₹3,739 crore, while standalone debt totalled ₹3,525 crore.
The company reported a consolidated loss of ₹1,555 crore for the financial year ended March, against a net profit of ₹21 crore logged in the same period of the previous year. Net sales dipped 1 per cent to ₹8,337 crore (₹8,432 crore).
Given the deplorable financials, bankers directed the promoters to infuse fresh equity into the company by attracting new investors. The company had appointed investment banker SBI Caps to scout for investors before lenders consider its proposal for a debt recast.
In 2010, ArcelorMittal picked up 34.4 per cent in Uttam Galva Steels through a share-purchase agreement, followed by an open offer, in a deal valued at ₹500 crore. It currently owns 29 per cent after a share issue in 2012-13.
Interestingly, the Miglanis’ Uttam Galva Group, through Shree Uttam Steel and Power, has signed an agreement with South Korea’s Posco to set up a three-million-tonne per annum integrated steel plant at Satarda in Maharashtra with an investment of $3 billion.
It has formed a joint venture, Posco Uttam Galva Metallics, and the first phase of 1.5 mtpa with an investment of $1.5 billion is expected to be operational by April 2019.
Besides high debt, Uttam Galva Steels’ profitability was hit after the government imposed a 20 per cent safeguard duty on hot-rolled coil imports in September.
Until then, the company had been importing basic steel coils at a much cheaper price and selling value-added galvanised products.
In April, India Ratings and Research downgraded its rating to default from BBB+ due to delays in servicing debt since February.