Essar Steel Ltd’s lenders, after 10 months of unsuccessful efforts to find a buyer for the debt-laden steel maker, now have two less desirable options left on the table.
One is to auction the Rs44,000-crore worth of bad loans to asset reconstruction companies (ARCs). The second is to approve a restructuring plan where banks get a 30% stake in the firm and seats on the board, while the current promoters retain management control, said four bankers who are part of the lending consortium, requesting anonymity.
Under a restructuring plan presented on Thursday, in exchange for diluting their stake in favour of banks, the promoters of Essar Steel sought about Rs10,000 crore to be converted into long-dated securities redeemable at a later date, the loan repayment period extended to about 20 years and the interest rate cut by 2.7 percentage points to about 9.8%, one of the four bankers cited above said.
Lenders also met Hong Kong-based special situations fund SSG Capital Management which wanted to buy a little less than half of the company’s rupee debt through Asset Care and Reconstruction Enterprise Ltd, where it owns 49%.
SSG has proposed retaining the present management and working with them to turn around the firm while providing only working capital. It is also asking for a restructuring of the remaining debt held by the banks by extending repayment tenure and lowering interest rates.
“The company has submitted its debt restructuring proposal which is under examination by the lenders. Therefore, it is premature to comment at this stage,” an Essar Steel spokesperson said. “The restructuring will ensure long-term sustainability of the company which is in the interests of all shareholders.”
SSG Capital did not respond to queries.
“The option we choose will depend on which one translates into the smallest haircut, provided there is a sustainable turnaround,” the banker cited above said.
Source:Livemint