Rohit Ferro-Tech might fail to get a suitor, fear lenders

Not only have Rohit Ferro-tech and Ankit Metals and Power been referred to the SDR programme, but lenders remain sceptical of its success

Even as Kolkata-based Rohit Ferro-Tech goes for strategic debt restructuring (SDR) after being saddled with mounting losses and huge loan dues, industry experts, bankers and analysts fear the lenders might not easily find a partner to offload their shares in the company under the new plan.

The debt burden of the company, promoted by Suresh Kumar Patni in 2003, was Rs 2,185 crore as of March 2015, while it ended the previous financial year with a loss of Rs 353 crore.

The market capitalisation had dipped to Rs 75 crore as on February 1, with shares trading below Rs 10 level. In this backdrop, a consortium of lenders led by State Bank of India invoked SDR in the company late last year. According to the SDR terms, the bankers will convert portions of their debt to equity and acquire sizable stake in the company within six months of the reference date. Then, offload the stakes in favour of a strategic partner within 18 months.

“The banks have no expertise to run the company. So, they will go for strategic sale of the assets after taking over the management through debt conversion. But, can they find a suitable buyer for the company when the market for ferroalloys and steel is on a trough?” says R P Panda, an industry analyst.

The firm has a total installed capacity of 274,583 tonnes per annum (tpa) of ferroalloys and 67.5-megawatt captive power plant spread in West Bengal and Odisha. It also has a 100,000 tpa stainless steel plant at Bishnupur in West Bengal. The Jajpur unit of Rohit Ferro-Tech in Odisha was sold last year to Balasore Alloys, a Ispat group company, at a consideration of Rs 1,050 crore through business transfer agreement by the lenders. Two other ferroalloys units of the company at Bishnupur and Haldia in West Bengal have been shut.

“The lenders cannot hold on to assets for long as the losses will continue to mount given the present market condition and quality of the assets. In the current market situation, the bankers will have to take some haircut and might go for selling the assets at discount, could be to the extent of 20-25 per cent,” said Giriraj Daga, portfolio manager, SKS Capital and Research.

But, it is better to sell the company at a discount and recover a substantial part of the exposure than to run the risk of letting the entire investment in the company become non-performing asset, he added.

The factor, which has hurt the group’s operation the most is that the management has gone for imprudent expansion of capacity, mostly between 2008 and 2010, without taking care of backward integration with raw material sources. As a result, without a captive mine, the operations have become unviable in a slump market with the cost of production pegged much higher than the selling price.