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Both the Enforcement Directorate (ED) and the Serious Fraud Investigation Office (SFIO) has waded into the ~54-billion loan to the Usha Martin group owed to a consortium of lenders headed by State Bank of India. While the latter has asked the Registrar of Companies to provide a report, the former would examine the case on a reference from the Prime Minister’s Office. None of the parties to the dispute were willing to confirm the developments, which have pushed another corporate bad loan into a case for the investigative agencies, instead of remaining an outright commercial dispute. Significantly the loans owed to the group are not classified as non-performing assets (NPAs) by the SBI consortium. They should not be, says Rajeev Jhawar, chairman of the company. The company is coming out of its troubles, he added. In January this year, it has cleared a Rs 1-billion loan with the bank, contracted as an external commercial borrowing. Yet just a month before, India Ratings and Research downgraded the company’s debt profile. Usha Martin’s long-term issuer rating has slipped to IND BB+ and the enterprise placed on “Rating Watch Negative”. Take your pick, but the contours of the case show why Indian banks are left holding the baby of bad loans or NPAs and possible investigative action, while company promoters duck their responsibilities. The headline news about the company is of course the long running family dispute between the two family factions. Brij Jhawar and his son, Rajeev, the current chairman are opposed by Basant Jhawar and his son, Prashant Jhawar. Both factions have an equal share of 25.5 per cent in Usha Martin, the flagship company of the group. The other entities of the group include Usha Martin Education & Solutions Limited, Usha Breco, UshaComm and Prabhat Khabar, among others. It is curious how the banking sector has let itself get drawn into the opposing camps and which has now drawn in the investigative agencies. The dispute has intensified after Prashant Jhawar had to move out as chairman in April 2017, ceding the position to Rajeev Jhawar. Prashant’ father, Basant, has made huge allegations like money laundering and others, all of which Rajeev Jhawar has denied. As the battle raged, for the quarter ended December 2017, the company’s net loss has reached Rs 1.16 billion on an annual turnover of Rs 43.75 billion. Its loss has worsened year on year; it was Rs 1.09 billion in third quarter of 2016-17. This has squeezed out the company’s liquidity position. Its ability to raise fresh debt has come down sharply, which is why an SBI internal note shows the bank had considered putting the loan into the S4A (scheme for sustainable structuring of stressed assets) basket in 2017-18 itself.
It has not been acted upon. Rajeev Jhawar is insistent that with the revival in the steel sector he is on a revival path and will make good on his loans. The numbers are sombre. From March 2014 when the net debt to Ebitda ratio was at an alarming 5:1, it worsened to 9.5:1 by March 2017. The company’s cash till is quite dry, as the chairman admits.One of the other ways the Kolkata-headquartered company can get some cash is the expected compensation of Rs 1.05 billion from the Jharkhand government for ceding the Kathuatia coal mine when the Supreme Court cancelled all allocations of coal blocks. Yet that, too, has got locked in a tussle over non-payment of past dues to colliery workers. The other option was sale of its profitable wire and wire ropes business. The SBI internal note prepared by the bank some time ago notes “however no binding offer has been received yet, so the possibility of sale of the…business in the recent future (March 2018) looks remote”. Incidentally, the chairman acknowledged the existence of the note, but said it has never been raised with the company’s board at any time. Essentially Usha Martin is on the equivalent of a wing and a prayer. None of the troubles of the group have come up suddenly. Instead it would seem the banks by being slow to take on the company management early on about their financial challenge has instead got ensnared in the boardroom battle among the promoters. For instance even as the net debt to Ebitda ratio got seriously adverse, SBI allowed a loan of Rs 10 billion to balloon to about Rs 26 billion by 2013-14. The corporate accounts group, Kolkata, of SBI did issue a letter in 2015 to the management to appoint a CEO once it discovered the firm had to true up the accounts. But despite slip-ups by the management, banks did not apparently haul up the management. A Business Standard news report quotes Prashant Jhawar’s allegation that he was ousted by the board in which his cousin's nominees voted against him, and where SBI nominee, too, voted in its favour. The bank knew it was coming. A year before in August 2016, it had allowed the company to pledge its shares, always a warning bell, by executing separate agreements with the two factions. Yet the warnings which were apparent to the rating agency still did not provide enough ground for banks led by SBI to bring the loan to the restructuring table.