The Indian Steel Association has sought a special financial package from the government and the Indian Banks’ Association in line with similar support provided to the textile and sugar industry.
As part of the package, the body — which represents Tata Steel, JSW Steel, Steel Authority of India Ltd and other steel producers — has sought a moratorium period on payments of interest and principal amount.
“The moratorium will be a short-term measure that will help ensure continued operations of the steel industry while various remedial measures are put in place and produce sufficient positive impact. It will be a necessary step to ensure that a large part of the debt of steel companies remains standard,” the Indian Steel Association said on Tuesday.
The industry has also sought splitting of its total debt into sustainable debt and balance debt. It wants long-term debt, working capital and a pre-determined debt service coverage ratio to form part of the sustainable debt component while the remaining can be part of the balance debt.
“The balance debt is proposed to be repaid over an extended period of time by converting it into redeemable preference shares or redeemable bonds,” the industry body added in its statement.
The total exposure of Indian banks to the steel sector stood at around ₹ 2,98,500 crore as on December 25, 2015. Most companies are over-leveraged with half of this debt with companies having a debt to EBIDTA ratio of greater than 12.
Between December 2014 and December 2015, ₹ 8,891 crore of debt to the steel sector entered corporate debt restructuring (CDR). As of December 2015 the sector accounted for the highest amount of loans under CDR at ₹ 54,051 crore.
“There is an urgent need for a comprehensive support system involving participation of all stakeholders to ensure the survival of this core sector. The survival of the sector is crucial for the economy considering the large investments that have gone into creating capacities,” said Sanak Mishra, Secretary General and Executive Head of the ISA.
The industry body welcomed the government’s imposition of a minimum import price but said it would take a while before the benefits of the move improved the financial performance of the industry.
“The average EBITDA margin of steel companies has dropped by over 40 per cent. As a result, a large number of advances to the iron and steel sector are under stress, which may soon lead to non-performing assets if not addressed now,” the ISA stated.
The domestic operations of the three major steel firms — Tata Steel, JSW Steel and SAIL — have made a combined net loss of ₹ 2,552 crore in the first nine months of fiscal 2015-16 as against a combined net profit of ₹ 9,362.04 in the same period last year.