Uttam Galva defaults on Rs 664-cr loan; ArcelorMittal, SBI among creditors

The coronavirus (Covid-19) pandemic and the resultant shutdown have started impacting companies with Uttam Galva Steels (UGSL) defaulting Rs 664 crore to its lenders. Apart from state-owned banks, ArcelorMittal is one of the top creditors of the company.

UGSL, which shut its plants and operations after the lockdown was announced last month, said it has an outstanding of Rs 1,008 crore to its creditors. A company source said the default is “technical in nature” and blamed the ongoing lockdown for it. Operations had to be shut after it was unable to procure raw materials from suppliers due to the lockdown, said company sources.

State Bank of India, Oriental Bank of Commerce, Indian Overseas Bank and Vijaya Bank also have exposure to the company. A large part of Uttam Galva’s loans was taken over by ArcelorMittal from public sector banks after it made the bid for Essar Steel in 2018 and later won it after a long-drawn legal battle.

The loans were taken over by ArcelorMittal India Private Limited (AMIPL), which had paid off Rs 4,922 crore to the secured financial lenders of UGSL to clear the overdue principal amount as on September 30, 2018, and interest due as on October 17, 2018.

Later, the overdue principal paid was assigned to AMIPL and the remaining outstanding loan (till completion of its tenure) continued with existing public sector banks as ‘surviving debt’.

Similarly, external commercial borrowing (ECB) loan facilities were partly assigned to Citi Bank, London branch, and $136 million was paid by ArcelorMittal, Luxemburg.

The ownership of Uttam Galva stayed with the Miglani family, which had acquired ArcelorMittal’s 29 per cent stake in Uttam Galva for Rs 1 on February 7, 2018 – just before ArcelorMittal had made the bid for Essar Steel.

But the Supreme Court later asked ArcelorMittal to clear the dues of UGSL if it wanted to become eligible to bid for Essar Steel. Despite the takeover of loans, UGSL’s financial performance did not improve due to the economic slowdown and it consistently reported lower revenue and higher losses. For the quarter ended December 2019, it reported revenues of Rs 147 crore and loss of Rs 273 crore. In fiscal year 2019, its revenues were Rs 556 crore with a massive loss of Rs 2,126 crore.

Thanks to ArcelorMittal’s payment, the State Bank of India (SBI), which had filed an insolvency petition against UGSL, had withdrawn the petition on November 1, 2018 – giving it a new lease of life.

In its annual report for fiscal year 2019, UGSL warned that cash flows from its existing operations are not sufficient to cover the fixed overheads let alone the principal and interest obligations.

“However, to ensure that the outstanding debt does not become a non-performing asset, the company has consistently cleared dues before 90 days of the due date from funds borrowed from ArcelorMittal India Private Limited by way of inter-corporate deposits (ICDs),” it had said.