Lenders to tap global investors for Bhushan Steel, Essar Steel

A reference for insolvency has already been made in Essar's case but not yet in Bhushan Steel's case

The lenders to Bhushan Steel and Essar Steel, both candidates for action under the insolvency and bankruptcy code (IBC), are also trying to involve global investors to get a better price for their equity.

A reference for insolvency has already been made in Essar's case and the latter has contested this at the Gujarat high court (HC). Such action is yet to be formally taken in Bhushan Steel's case.

SBI Capital Markets is advising the lenders on a restructuring package for some of the companies referred under IBC to the National Company Law Tribunal (NCLT). Last week, a team from SBI Cap was in London, to meet the senior management of ArcelorMittal, the world's largest steel maker (an e-mail from this publication to ArcelorMittal went unanswered).

The lenders say the idea is to get as wide a participation as possible for Bhushan and Essar, which were quality assets. "We want to get as many bids as possible for these companies. It will mean better price discovery," said a senior bank executive.

Essar filed its appeal at the Gujarat HC on Tuesday. The proceedings were initiated against it at the NCLT by a SBI-led 22-lender consortium, beside Standard Chartered Bank. In Bhushan Steel's case, as mentioned, the lenders are yet to file at the NCLT. Sources close to the development said, there is time till July 15 to do so in the case of other big accounts.

At the end of 2015-16, Essar Steel's debt was Rs 37,284 crore. Bhushan Steel's was Rs 44,478 crore. Essar has a steel making capacity of 10 million tonnes a year; Bhushan's is around five mt a year.

Public sector banks hold the highest exposure to stressed assets in the steel sector. The total stressed assets of PSBs rose from nearly Rs 7 lakh crore in 2016 to Rs 7.4 lakh crore in 2017. The iron & steel sector's share of stressed assets was 26.1 per cent, followed by infrastructure (11.8 per cent), agriculture (9.7 per cent) and textiles (6.6 per cent), respectively, according to finance ministry data.

Prior to the insolvency proceedings, restructuring proposals were being discussed by the companies with the lenders. For Bhushan Steel, a loan recast under the Scheme for Sustainable Structuring of Stressed Assets was being worked out. Also, JSW Steel had approached the lenders to take over Rs 20,000-22,000 crore of this debt.

Essar Steel's proposal was to bring new equity of Rs 2,500 crore into the company by the promoters and, if required, an investor. The plan also included banks converting part of their debt into equity. On Friday, Essar Steel's counsel had argued in court that under Section 35 of the Banking Regulation Act, lenders can't initiate insolvency proceedings at a time when a restructuring process was on.

Sources close to Bhushan also say the company's proposal was in the final leg of approval when it was referred to NCLT.