PE firms, lenders may take stake in Bhushan Power & Steel as part of revamp

The firm, with debt over Rs 40,000 cr, is facing proceedings under Insolvency and Bankruptcy Code

Private equity firms and lenders may take an exposure in Sanjay Singal-controlled Bhushan Power & Steel as part of the restructuring of the company.

Bhushan Power & Steel is facing insolvency proceedings under the Insolvency and Bankruptcy Code.

Last week, lenders decided to refer it to the National Company Law Tribunal (NCLT). To date, the company's debt is Rs 40,000 crore, which includes working capital.

Sanjay Singal, chairman and managing director of Bhushan Power & Steel, said that lenders were in discussions with two-three private equity firms. They were also likely to convert part of their loans into equity and the balance could be restructured.

Bhushan Power & Steel is an unlisted company and the promoters hold around 95 per cent in it. It is likely that after the private equity firm takes an exposure and lenders convert loans into equity, the holding of the existing promoters could come down by 25 per cent. The plan will be submitted to the NCLT.

“The discussion with private equity players is being held by lenders,” Singal said. Asked whether there would be any change of management, Singal said it would be joint management.

Bhushan Power & Steel has a steel-making capacity of three million tonnes across Odisha, West Bengal, and Chandigarh. The hot-rolled steel facility is in Odisha and the cold rolling facilities are in Kolkata (West Bengal) and Chandigarh.

Bhushan Power & Steel ran into trouble after its licences for iron ore and coal mines were cancelled. The company had been allotted a coal mine with reserves of around 250 million tonnes, and that was deallocated in 2014.

The iron ore mines were committed by the Odisha government. However, the two mines were allocated in 2012 and 2014 after Supreme Court intervention. But subsequently, the amended Mines and Minerals (Development and Regulation) Act was passed in 2015. As a result, Bhushan’s iron ore mines also got cancelled.

“The project was set up on the basis of the mines. We set up the coal washery on the basis of the coal mine. Otherwise, we would have gone for the blast furnace route. Our problem is because of the cancellation of the mines,” said Singal.

The company’s debt increased from Rs 10,509 crore in FY10 to Rs 37,248 crore in FY16, while net sales during the period increased from Rs 3,997 crore to Rs 7,700 crore.

According to Icra, the exposure of the Indian iron and steel sector in the banking system stood at Rs 3.13 lakh crore as on March 31, 2016, and gross non-performing assets in the sector were Rs 1.15 lakh crore.

Apart from factors like the cancellation of mines, weak demand and surge in cheap imports added to the problems of the sector, prompting the government to come up trade measures towards the end of 2016.

Bhushan Power & Steel: Load Shedding
Fiscal year	Net sales	PBDIT	PAT	Net worth	Total debt
FY10	3,997	1,117	256	2,756	10,509
FY11	4,678	1,416	438	3,722	13,402
FY12	6,751	2,056	534	5,459	17,907
FY13	8,670	2,705	572	6,266	24,810
FY14	10,309	3,295	635	8,072	30,558
FY15	9,248	2,002	(1,366)	6,804	33,785
FY16	7,700	1,203	(2,436)	4,366	37,248
Figures in Rs cr; PBDIT: Profit before depreciation, interest and tax; PAT: Profit after tax; Source: Capitaline; Compiled by BS Research Bureau