JSW Steel sole bidder for Monnet Ispat

Monnet's debt increased from Rs 8,606.50 cr in FY13 to Rs 12,499.70 cr in FY15; lenders invoked SDR

Sajjan Jindal-led JSW Steel has emerged as the sole bidder for a controlling stake in Monnet Ispat Energy through the strategic debt restructuring (SDR) route.

Friday was the last day for submitting bids and JSW Steel was the only company to submit the final bid, sources close to the development said, though global private equity fund Blackstone and Sudhir Maheshwari-led Synergy Capital had discussed the matter with lenders.

Asked whether Synergy decided not to go ahead with the bid, Maheshwari said, “I am unable to comment on market rumours.”

A source said: “It would still take time to close the deal with JSW Steel. March would be a realistic time by when the deal could be closed. The discussion would now focus on whether JSW would take the entire equity from the lenders or take part equity and infuse capital in the company.”

Lenders have around 53 per cent in Monnet Ispat, which was one of the first SDR companies in which lenders converted debt into equity. The existing promoters have around 25 per cent.

Sources indicated preliminary discussions had been held between lenders and JSW Steel after Friday’s meeting. But there are likely to be many more rounds of talks to finalise the contours of the deal.

“The existing promoters could have a residual stake in Monnet without management control,” a source said.

It’s been around 17 months since lenders invoked the SDR in Monnet. They had been dragging their feet on making a decision on SDR companies primarily because of the haircut (the difference between the market value of an asset and loans) that they would have to take. The extent of the haircut in the JSW-Monnet deal is not known. A Religare report of early 2016 had said that to attract a buyer, lenders would have to take a haircut of 84.5 per cent. Net margins in the steel sector have improved since then, however.

Monnet ran into a huge debt, and in August 2015 lenders invoked SDR.

SDR had been introduced by the Reserve Bank of India in June 2015 to tackle bad loans by allowing banks to acquire control of a defaulting company by converting the loans into equity. That was to be followed up by bringing in new promoters, after which sticky assets were to be upgraded to standard ones.

Monnet’s debt increased from Rs 8,606.50 crore in FY13 to Rs 12,499.70 crore in FY15.

In FY16, the debt stood at Rs 12,115.10 crore. In the quarter ended September 2016, the company had a negative net worth and total debt stood at Rs 6,872.70 crore; net loss was at Rs 409 crore on net sales of Rs 271.1 crore.

Monnet Ispat’s troubles started when the Supreme Court de-allocated 214 coal blocks in 2014. Monnet had five coal mines and was the second-largest coal-based sponge iron producer. Its facilities are based in Raipur and Raigarh. From a sponge iron player, Monnet Ispat had transformed into a steelmaker by commissioning a plant at Raigarh in FY14. The operating mine close to Raigarh provided the coal. That seamless supply arrangement was disrupted when the coal blocks were cancelled.