Debt-laden Bhushan Steel Ltd has plans to sell its non-core steel assets to prevent default on interest payments and continue its operations. The company, which is in the midst of a crisis following the arrest of its vice chairman and managing director Neeraj Singhal in the Syndicate Bank bribery case, plans to garner around Rs 2,500 crore by monetising its assets that will enable the company to stay afloat and manage its tight cash situation and debt commitments over next one-and-half years.
Sale of non-core asset has also been advised by company's lenders as well as another plan to raise equity worth $ 1 billion may have to wait due to the current situation in the company. The total debt in the books of Bhushan Steel is around Rs 40,000 crore with its debt equity ratio hovering around high levels of 3.5:1. The ratio rises to four if other liability including deffered tax liability is included. The company needs around Rs 1000 crore for meeting its current working capital needs to increase capacity utilisation of its Odisha steel plan current running at on a plant load factor of 50-55 %.
"We expect to get working capital support from banks by mid-October. An alternate plan had been worked out earlier for asset sale. Depending on the requirements, this would be effected over next one year period," said a senior company official on condition of anonymity.
The shares of the company closed 2.67% up on the Bombay Stock Exchange at Rs 132.85 on Wednesday.
Under the asset sale plan worked out earlier this year at the time of loan sanction of Rs 6,900 crore, company stated that it would keep the oxygen plant under sale and lease deal to garner around Rs 1,200 crore, if need be. Other auxiliary plants associated with Odisha steel unit, such as lime & calcining plant and coke oven battery could be considered for sale at later date.
"The asset sale plan can change depending on market conditions. If the steel market picks up or the company is able to go to the market to raise equity, the asset sale plan could be dropped," the official added.
Banks are jittery over their huge exposure in Bhushan Steel projects and are looking at various options to ensure that loans does
not turn into non performing assets. The banks are appointing directors on company's board while some have also exercised option to convert debt into equity, wherever such option existed. Banking sector, however, is not pressing the alarm bells due to he assets created by the company that is already generating cash.
Bhushan Steel reported a net loss of Rs 141.63 crore in the quarter ended June 30. It had posted a net profit of Rs 76.26 crore in the corresponding period a year earlier. However, total sales was at Rs 2,801.68 crore in the April to June period, up 12.48% from Rs 2,490.86 crore.
The company has put up a 5.6 million tonne steel plant in Odisha, which due to delays over raw material support by the state government and issues pertaining to de-allotment of captive coal mines got delayed by almost a year. The plant is currently running at a capacity of 2.5 mt and needs working capital support for a capacity ramp up 4 mt per annum.
Source: The Financial Express