Srei Infrastructure Finance eyes its debtor Electrosteel Steels

Five others interested in insolvency-hit firm

Kolkata-based Srei Infrastructure Finance has formally expressed interest to acquire its debtor firm Electrosteel Steels, currently undergoing insolvency proceedings.

Besides Srei, five others have formally expressed interest in the firm: Tata Steel, Mesco Steel, Edelweiss, Avalokiteshvar Valinv Ltd and Electrosteel Castings. 

A Tata Steel spokesperson said, "As a process, we do assess and evaluate various strategic opportunities for growth. This is an ongoing process in the company."

Srei, which has an exposure of around Rs 300-400 crore to the firm, has proposed to bring in a technical advisor to run the company. 

"We have submitted an expression of interest for Electrosteel Steels. As a lender to the company, we look to protect the interest of all other lenders and ensure that the company is running. We don't have the expertise to run a steel firm, so we will introduce a technical partner to run the company at a suitable point in time," Hemant Kanoria, chairman of Srei Infrastructure Finance, told Business Standard.

Last year, Srei had opposed management change at Electrosteel under strategic debt restructuring (SDR), remaining in favour of the existing promoter running the company. Electrosteel was the first company for which lenders had invoked SDR. During SDR of the company, London-based fund house First International Group Plc and Tata Steel had emerged as its foremost bidders. 

"We had earlier taken a stand that there was no reason that the existing promoter should be removed because the problems in the company were sector-specific. We are always in favour of the present promoter running the company. However, now the circumstances have changed and we have to evaluate the best option. The committee of creditors will take a call on whether they want a new promoter or will continue with the existing one," said Kanoria. 

Electrosteel Steels has a debt of about Rs 10,274 crore from a consortium of banks, led by State Bank of India. It is one of the 12 Non-Performing Asset accounts identified by the central bank in June under Insolvency and Bankruptcy Code for admission in the bankruptcy tribunal. 

"The difference between Srei and other lenders is that we are not only looking to recover the money, but also providing a holistic solution to successfully run the company," added Kanoria. Earlier, in the case of Hyderabad-based Deccan Chronicle, too, which saw promoters defaulting on payments, Srei had initiated the process to take control of the company. 

Srei is one of the few financial institutions to have expressed interest in acquiring a debt-ridden company currently under insolvency proceedings. A number of stumbling blocks tripped up Electrosteel Steels, such as delay in commissioning increasing project cost by 20 per cent.

Banks had supported the company largely due to the raw material linkages. Electrosteel Steels was promoted by Electrosteel Castings, which had already secured Parbatpur coal mine having reserves of 231 million tonnes. Plus, it had an iron ore mine and a non-coking coal mine in Jharkhand.

Electrosteel Steels was to source iron ore and coking coal from Electrosteel Castings for a period of 20 years. But, then, the coal blocks of Electrosteel Castings were de-allocated in 2014 forcing Electrosteel Steels to buy raw materials from the market at high prices, even as prices for the finished product witnessed a crash.