Banks, Electrosteel in talks to tie up funds for steel project

A State Bank of India-led lender group is in talks with Kolkata-based Electrosteel Steels Ltd (ESL) to tie up funds for its steel project in Jharkhand which has seen delay in commissioning of its operations.

ESL saw a delay in commencement of commercial operations and was hit by cost escalation. The company has a 2.51 million-tonne integrated steel and ductile iron pipe project and a 120 Mw captive power plant, at Bokaro, Jharkhand. Net loss more than doubled to Rs 158 crore in April-December 2012 as against Rs 73 crore in April-December 2011.

Binod Khaitan, chairman of ESL, said the steel industry was passing through a phase of slowing demand and a rise in costs. This new project got into a problem due to delay in commencement of operations. Beside SBI, the other bankers to the company are Bank of India, Bank of Baroda, Allahabad Bank and Central Bank of India.

The lenders have exposure for a little over Rs 7,500 crore.

A senior bank official said this is not a restructuring, involving a rate cut or payment holiday. It involves a fresh line of credit, he said. The project remains viable. SBI’s exposure to the iron and steel sector was Rs 56,531 crore at the end of December 2012. The country’s largest lender has restructured loans worth Rs 5,267 crore given to steel companies. Its gross non-performing assets in iron and steel units were Rs 3,566 crore.

In August 2012, CARE Ratings had downgraded ESLfrom ‘BBB’ to ‘BB-’. ESL revised the project capacity to 2.51 million tonnes annually from 2.2 mtpa and decided on an operational revamp to achieve better efficiency. Hence, the project cost rose by Rs 2,200 crore to Rs 9,562 crore. The cost overrun due to delay in project commissioning added to the rise in outlay, said CARE.

It is to part-fund the cost increase by securitising future receivables originating from the DI pipes & pig iron division. Khaitan said ESL’s promoter company, Electrosteel Castings, had also infused capital in the company.

Electrosteel Steel has clarified that banks have given it additional funds and the company was not trying to rework any payment schedule, as wrongly suggested in the report
The error is regretted.