Increase in project cost due to delays in getting clearance for iron ore mines and tying up funds has prompted lenders to refer their Rs 7,000 crore loan exposure to Electrosteel Steels Ltd to the corporate debt restructuring cell.
Electrosteel Steels Ltd (ESL), promoted by Kolkata-based Kejriwal Group through its flagship company, Electrosteel Castings Ltd (ECL), had planned to set up an integrated 2.2 million tonne per annum (MTPA) capacity steel plant in Bokaro, Jharkhand.
The estimated project cost was Rs 7,262 crore. The project work began in July 2007.
With the progress of project works, ESL increased the plant capacity to 2.51 MTPA.
The incremental cost for the enhanced plant capacity was assessed at Rs 1,236 crore. While the promoters chipped in with an additional equity of Rs 412 crore, the additional term loan of Rs 824 crore could not be tied-up.
According to a banker clued in to the development, ESL’s financial strain has originated from its inability to adhere to the commercial operation date (COD), originally scheduled in April 2010, due to external reasons.
The external reasons are: initial hassles relating to land acquisition; non-availability of Chinese labour due to visa issues; and delay in tie-up and disbursement of additional term loan for completion of work at some major modules at the plant.
Loan recast
Thirty banks and financial institutions, including State Bank of India, Punjab National Bank, Canara Bank, UCO Bank, Life Insurance Corporation of India, SREI and HUDCO, have an exposure to ESL.
The loan restructuring envisages structured repayment of existing term loans aggregating Rs 6,175 crore in quarterly instalments from December 2015 to December 2022.
The company will pay an interest rate ranging from 10.75 per cent interest to 11.50 per cent during the loan period.
ESL has proposed to infuse equity of around Rs 1,700 crore in FY15-16. A part of this (Rs 750 crore) would be used to pay the existing term loan and the balance amount of Rs 950 crore would be used for repayment of funded interest term loan (FITL).
The steel company will get fresh term loan of Rs 1,100 crore at an interest rate of 11 per cent (to be reset after three years) for the additional project cost. Interest on term loan (existing and proposed fresh term loan) from March 2013 to February 2015 will be funded and converted into FITL.
Proposed collateral
Bankers say the entire assets of the company will be pooled together. All the loans that will be extended by lenders participating in the CDR process would be secured by the pooled assets.
Further, the CDR proposal will go through only if the promoter, Umang Kejriwal, offers personal guarantee and the entire promoter shareholding of 39.64 per cent is pledged with the lenders.
A top ESL official indicated that all conditions imposed by the lenders for seeing the company’s debt restructuring proposal through will be met.
Share of ESL closed at Rs 3.79 per share, down 2.32 per cent, on the BSE.