Three seasons and a washout as the Bhushan Power resolution dragged

BPSL was admitted for resolution under IBC in July 2017. On Friday, it came nearer to resolution with majority of lenders voting in favour of JSW Steel's proposal to close the process

During the past three and a half years that the Bhushan Power & Steel (BPSL) resolution has dragged, the steel sector has seen an upturn, an economic slowdown, a washout due to Covid and a V-shaped recovery.

BPSL was admitted by the National Company Law Tribunal (NCLT) for resolution under the Insolvency and Bankruptcy Code (IBC) in July 2017. On Friday, it came nearer to resolution with majority of lenders voting in favour of a JSW Steel’s proposal to close the process even as a ruling from the Supreme Court is awaited. The idea is to close the process by March 31.

But between the time it was admitted and till last week, the steel sector has gone through the best and worst of times.

Isha Chaudhary, director, Crisil Research, said that the last cyclical downturn was seen in FY17 wherein steel demand moderated to a growth of 3.1 per cent.

That was followed by two fairly strong years of FY18 and FY19. Then domestic steel demand moderated yet again with a 1.4 per cent demand growth in FY20 on account of construction and consumption slowdown.

Then just as things were improving, a lockdown to contain the Covid-19 pandemic, led to a widespread demand destruction. However, a quick and sharp recovery followed that led steel prices to touch an all-time high in January, in line with the global trend.

While the pandemic induced lockdown in H1 FY21 saw a demand decline of 30 per cent on-year, robust recovery across all end use segments from October 20 onwards, will limit steel demand fall to 5.5-6.5 per cent in fiscal 2021, said Chaudhary.

BPSL is not the only asset to see changes in business cycles during a protracted resolution process. With a spate of litigations, many of the cases have seen delays.

According to Insolvency and Bankruptcy Board of India (IBBI) data, as on September 30, there were about 1,942 ongoing CIRPs (corporate insolvency resolution process), of which 1,442 had exceeded 270 days.

“The first six months of the year were slow due to the pandemic and lockdown, but now things have started picking up. But the worry is, once the fresh applications under IBC are allowed, a new pipeline of cases is expected,” said Abhishek Dafria, vice president, ICRA.

Also, delays may not mar resolution in cases like BPSL, but it was more likely to impact smaller assets.

“In larger cases where the plant is operational and asset quality has not deteriorated, bidders are not looking at a narrow horizon. A one-year delay therefore would not impact interest in the asset or the valuation,” explained Dafria.

But in smaller assets, the interest could be for a small window and those bids may suffer, he added. According to sources, BPSL has been EBITDA positive throughout the CIRP, largely due to high steel prices. The average domestic hot rolled coil (HRC) prices in FY18 was Rs 39,181 a tonne and the estimate for FY21 is Rs 44,000-44,500 a tonne, according to Crisil Research.

The steel sector may have recovered from the pandemic. But that’s not the case with all sectors.

“During the pandemic, we have seen a few bids fall through as cashflows took a hit,” Dafria pointed out.